Trailing 12 Months, or “TTM,” is a financial data format. It refers to a set of data that covers the past 12 months. Investors can use a TTM analysis for any metric they would like to analyze, from revenue to P/E ratios. It allows them to see how a company has performed over the past year and is often used to evaluate quarterly or seasonal performance. Here’s what you need to know.
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What Is Trailing 12 Months
Trailing 12 months is any data set that covers the past 12 months of a company’s performance. This is a method of analyzing data, not a specific metric, meaning that you can run a TTM analysis on any different technical metric. This analysis is backward-looking, so it reflects past performance rather than predicting future outcomes, although it is typically used as a way of evaluating a company or an asset’s overall strength.
For example, say that you pulled a company’s TTM earnings. That means you would be looking at the company’s combined earnings over the past 12 months. The same would be true if you conducted a TTM P/E analysis. You would be looking at a company’s price-to-earnings ratio (P/E) over the trailing 12 months (TTM). It is, essentially, a way of looking at the last year’s worth of combined performance.
A TTM analysis is real-time as of when you conduct it. For example, if you conduct a TTM analysis on October 1, 2023, you would compare data between October 1, 2022 and October 1, 2023. This means that a trailing 12-month analysis will differ depending on when you conduct it.
However, a trailing 12-month analysis is only as current as the data you can pull. For example, it’s common to conduct a TTM analysis on a company’s earnings. Since most companies announce their earnings on a quarterly basis, that’s as granular as you can make the analysis. Your results won’t change until the company releases its next quarterly statement.
Example of a TTM Analysis
Say that you want to conduct a TTM analysis on the earnings of a company. There are two common ways to do that:
First, you could calculate the numbers on their own. Say you are in the third quarter of 2023 and you would like to do a TTM analysis on ABC Co. It has published the following earnings:
- Q2 2023 – $10 Million Profit
- Q1 2023 – $1 Million Loss
- Q4 2022 – $4 Million Profit
- Q3 2022 – $5 Million Profit
- Q2 2022 – $15 Million Loss
- Q1 2022 – $1 Million Profit
We are looking at the last 12 months, so we would add: Q2 20223 + Q1 2023 + Q4 2022 + Q3 2022 = ($10 Million – $1 Million + $4 Million + $5 Million) = $18 Million.
The trailing 12 months earnings for ABC Co. is $18 million. Since this is a 12-month analysis, we do not account for any of the quarters outside that window.
Stub or Moving Method
You can also calculate TTM on a moving basis. Say that, again, you are in the third quarter of 2023. You know that in the last quarter, the trailing 12 months earnings for ABC Co. was a $7 million loss. You would like an updated analysis for the most recent quarter.
Here, you could update your data by adding in the new quarter and dropping the last. This would give you: Trailing 12 Months = Previous TTM + Q2 2023 – Q2 2022 = (-$7 Million + $10 Million + $15Million) = $18 Million.
Why Use a TTM Analysis
Trailing 12 months is a common and important tool for the entire financial industry. Investors use it when they evaluate an asset. Banks use it when they evaluate new loans. Companies use it when they evaluate partnerships and acquisitions. In fact, most financial statements will include TTM statements on a company’s significant metrics such as revenue, earnings and P/E ratio.
There are several reasons the financial industry uses a trailing 12-month analysis. The most common include:
It can be difficult to measure a company’s performance over a short period of time. Even a single quarter can be subject to significant internal or external fluctuations. A year-long analysis gives investors a bigger picture to look at so that they can see if a company’s gains or losses are representative or reflect a short-term anomaly.
A TTM analysis gives you a sense of the company’s overall performance and direction. By calculating any given metric over a 12-month period, you can tell how many it is tending to move. This data over time is more useful than a static sense of a company’s performance in one quarter or one month.
It’s not uncommon to perform several TTM analyses to compare against each other. The reason is similar to the reason investors will use a single trailing 12-month analysis. By pulling multiple TTM results, you can get a year-over-year comparison of how a company has performed over several years. Again, this gives you a moving data set that can give a sense of the firm’s momentum and direction.
Finally, it’s common to use a trailing 12-month analysis to compare multiple different companies or assets. By calculating the yearlong performance of several different assets, you can get a better sense of how they compare against each other. This can help correct short-term volatility in favor of a standardized and ideally more representative set of data.
All of that said, it’s important to remember that a trailing 12-month analysis is just one way of looking at data. Like all formats, it has its strengths and weaknesses. Take our example above. By looking at the company’s TTM earnings in the third quarter, we dropped the heavy losses that it suffered in 2022. Our TTM simply wouldn’t see that -$15 million.
That might be a good thing. Perhaps Q2 2022 was unrepresentative of the company’s overall strengths. It might, for example, have suffered from a severe weather event or a short-term leadership crisis. In this case, our TTM lets us move on from noisy data and see the big picture.
But maybe Q2 2022 revealed some fundamental weaknesses about ABC Co. that it has since managed to paper over. Perhaps its earnings in the last 12 months reflect financial movements or unsustainable growth rather than a strong business model. In this case, our TTM will hide an important piece of data that will come back to bite us as investors later.
This is why, like all analytical tools, trailing 12 months of data must be looked at alongside other information. Review several metrics and make sure to review the fundamentals, before making any investments. The data all works together, even if the TTM is an important part of the picture.
Trailing 12 months is a data format used in finance and investing. It refers to looking at a company or an asset’s performance over the past 12 months to try and get a broader understanding of financial performance. Knowing how to use this data can make a major difference in successful investing.
- TTM is a technical investment approach, using the numbers from an asset to try and understand what’s going on. It pairs with fundamental investment, in which you study the asset’s underlying business model and real-world value.
- A financial advisor can help you build a comprehensive retirement plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
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