Trailing Twelve Months (TTM) Definition
Investors often evaluate the financial performance of a company by looking at the company's sales, expenses, and net income over the past 12 months or trailing twelve months (TTM).
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TTM Meaning
TTM stands for "trailing twelve months" and refers to the past 12 months of performance for a business. Anyone using TTM often looks at how much revenue the business has generated over the previous 12 months, at any given point in time. However, TTM measures also include expenses, net income and other metrics over the same period of time. By looking at all of these factors together, a business owner or investor can get a good idea of whether a business is trending up or down based on the most recent performance, taking into account any seasonality of the business.
TTM Price/Earnings
This is often referred to as a trailing price-to-earnings (P/E) ratio. It can be calculated by taking the stock price at any given time and dividing it by the company's earnings per share for the previous four quarters. This helps show investors how expensive a stock is in relation to its past earnings performance.
TTM Yield
TTM yield refers to the percentage of income a specific security has returned to investors over the previous 12 months. This can be calculated by taking the weighted average of the yields that make up the portfolio of assets and looking at the numbers generated for every month or by quarter for the previous year.
Where TTM Is Found in Financial Analysis
In finance, TTM refers to measuring the financial performance of a company over the past 12 months. This is generally done to either help make better decisions by management, to get financing, or for investors to evaluate and determine its worthiness for their money. By looking at the sales, expenses, and net income over the past 12 months, you can get a good idea of how well the company is doing and whether or not it is a wise investment.
Benefits of Using TTM
Looking at the trailing twelve month measure for a metric can be helpful for evaluating a company's performance. Choosing to look at the TTM as opposed to other time periods can provide these benefits:
Helps build a baseline: This can give you a baseline of data to go off of to evaluate future performance.
Eliminates seasonality: Taking into account a full year helps you better understand the natural ups and downs of a business through each season.
Tracking of leading indicators: TTM analysis tracks some of the most important things that any business or investor should be aware of.
Up-to-date information: The financial information obtained through this exercise has to be up-to-date and provides the best overall picture of company performance.
TTM vs. YTD
- TTM takes a snapshot of the previous 12 months at any point in time. For example, if an analysis was done through May 2022, it would look at performance all the way back to June 2021 and forward.
- A YTD analysis only looks at the current calendar year’s performance. So if the analysis is done as of March 1st, then the data will only be for January and February of that year.
A TTM analysis gives a better overall financial picture since it takes into account the performance over more time, in most cases.
Bottom Line
Overall, evaluating a business via the TTM can help businesses better understand the financial picture of their business. It can also help investors have a full understanding of how a potential investment performs through every season of the year.
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