Trailing twelve months

Definition

Trailing twelve months (TTM) refers to the financial performance metrics of a company over the most recent 12-month period. This metric provides a rolling view of the company's financials, allowing analysts and investors to assess trends and make comparisons without being affected by seasonal fluctuations or one-off events that may skew results. TTM is commonly used in calculating ratios like the price-to-earnings ratio, which is crucial in evaluating a company's valuation.

5 Must Know Facts For Your Next Test

1. Trailing twelve months data smoothens out seasonal effects by averaging financial results over an entire year, making it easier to analyze performance trends.
2. TTM figures are often used in investor presentations and earnings calls to provide a clearer picture of ongoing business performance compared to quarterly reports.
3. Investors prefer TTM metrics as they reflect the most current performance, especially when assessing companies with fluctuating earnings or rapid growth.
4. Using TTM data can help identify long-term trends that are not visible in single quarterly or annual reports, enabling better investment decisions.
5. TTM is commonly applied across various financial metrics, including revenue, net income, and cash flow, giving a comprehensive view of a company's financial health.

Review Questions

• How does trailing twelve months provide a clearer understanding of a company's financial performance compared to other timeframes?
  • Trailing twelve months offers a continuous and rolling view of a company's financial metrics, smoothing out any seasonal variations and one-off events that can distort results. Unlike quarterly or annual reports that may focus on specific periods, TTM captures the most recent 12 months of data, allowing investors to see ongoing trends and patterns. This approach helps in making more informed investment decisions by highlighting consistent performance rather than short-term fluctuations.
• In what ways can trailing twelve months metrics impact the price-to-earnings ratio and overall investment evaluation?
  • Trailing twelve months metrics significantly influence the price-to-earnings ratio by providing an up-to-date earnings figure that reflects the company's recent performance. Since the P/E ratio compares the current share price with TTM earnings per share, it allows investors to gauge whether a stock is overvalued or undervalued based on current financial realities. As such, using TTM data leads to more accurate assessments of a company's valuation and future growth potential.
• Evaluate how trailing twelve months can help investors identify potential investment opportunities or risks within a company’s financials.
  • Trailing twelve months metrics are instrumental in helping investors uncover potential investment opportunities or risks by revealing underlying performance trends that may not be apparent in isolated quarterly results. By analyzing TTM revenue growth rates or profit margins over time, investors can spot consistent improvement or emerging issues. Additionally, comparing TTM figures against industry benchmarks can highlight competitive advantages or weaknesses, ultimately aiding in making well-rounded investment decisions based on comprehensive financial health.

Related terms

Price-to-Earnings Ratio: A financial ratio that compares a company's current share price to its earnings per share, often used to evaluate the relative value of a company's stock.

Earnings Per Share: A measure of a company's profitability calculated as net income divided by the number of outstanding shares, essential for determining the TTM earnings.

Financial Statements: Formal records of the financial activities of a business, including the balance sheet, income statement, and cash flow statement, which are necessary for calculating TTM metrics.