The TTM method is essential because it provides companies with detailed, recent financial data for internal audits, financial analysis, and corporate planning. It’s useful for evaluating revenue growth, margins, sales and expense trends, working capital management, key performance indicators (KPIs), and other financial metrics.
Free TTM Income Statement Spreadsheet
Our free TTM income statement spreadsheet computes the latest 12 months of financial data automatically with column and line charts for illustration. To use this spreadsheet without problems, you must at least have Microsoft Excel 2013, and before using it, update the data using income statement information from your actual and budgeted income statements.
In the dashboard of this spreadsheet, you’ll see the static and dynamic TTM income statements. The Static TTM shows you only the past 12 months, while the Dynamic TTM can show you data from any month or year.
How To Calculate Trailing Twelve Months
Analysts use different methods to calculate TTM depending on which financial report the data is sourced from. However, TTM doesn’t necessarily coincide with the ending of a calendar year or a company’s fiscal year. Let’s discuss how to compute TTM for monthly and quarterly reports.
TTM Calculation for Monthly Reports
Add the values for each month during the last 12 months to get an annualized value. If you’re using the income statement, add all income statement line items—such as revenues, cost of goods sold (COGS), operating expenses, and net income—of the current month and 11 months prior to it.
The same process applies when using the cash flow statement. Add cash provided (receipts > disbursements) or used (receipts < disbursements) by operating, investing, and financing activities to arrive at the net increase or decrease in cash. Afterward, add the beginning cash balance to determine the ending cash balance.
Here’s a visual guide for preparing a TTM using monthly reports:
Example Using 13 Months of Data
To calculate the TTM for a business, let’s use the example of a company called Tech Gadgets. To calculate the TTM revenue for December 2023, we add the revenue from January 2023 to December 2023, using the data below.
Monthly Revenue for Tech Gadgets:
| Month | Revenue |
|---|---|
| January 2023 | $100,000 |
| February 2023 | $120,000 |
| March 2023 | $130,000 |
| April 2023 | $110,000 |
| May 2023 | $140,000 |
| June 2023 | $150,000 |
| July 2023 | $125,000 |
| August 2023 | $135,000 |
| September 2023 | $145,000 |
| October 2023 | $155,000 |
| November 2023 | $160,000 |
| December 2023 | $170,000 |
Calculating TTM for December 2023:
TTM Revenue = $100,000 + $120,000 + $130,000 + $110,000 + $140,000 + $150,000 + $125,000 + $135,000 + $145,000 + $155,000 + $160,000 + $170,000 = $1,640,000
Updating TTM for January 2024:
Let’s assume the revenue for January 2024 is $150,000. To calculate the TTM for January 2024, we add the revenue from that month and subtract the revenue from January 2023:
TTM Revenue = $1,640,000 (previous TTM) + $150,000 (January 2024 revenue) – $100,000 (January 2023 revenue) = $1,690,000
By following this rolling calculation, Tech Gadgets can track its TTM revenue every month, which provides a more dynamic view of its financial performance compared with looking at just annual figures.
TTM Calculation Using Quarterly Reports
There are two ways to perform a TTM calculation for quarterly reports, and the first method is easier to understand. However, both provide the same information.
- Add all current quarters, and get the remaining quarters from previous years. For example, if the current quarter is Q2, you should get Q2 and Q1 of the current year then pick up Q4 and Q3 of the previous year to have an annualized report.
- Use last year’s financial statements, add up all current quarters from the most recent reporting period, and subtract the same quarters from the previous year.
Pros & Cons of Using Trailing Twelve Months
| PROS | CONS |
|---|---|
| Shows the most recent 12-month financial performance of a business | Can be tedious to do since you need to work back using monthly or quarterly company reports |
| Helps investors and creditors evaluate and value a company by performing financial statement and ratio analysis using TTM figures, especially for computing the price-earning ratio | Yields irrelevant data for businesses under volatile sectors such as energy, technology, and commodities, to name a few |
| Helps business owners make strategic decisions that drive company performance | Requires an accounting information system in place to pick up monthly or quarterly data quickly |
Importance of TTM
1. Eliminates Seasonality
Using TTM analysis eliminates seasonal fluctuations in the business that occur every year because it looks at trends for a more extended period. Financial analysis using TTM provides a more accurate picture of a business’s financial health because it uses the most recent data over a longer period than monthly or quarterly.
2. Tracks Leading Indicators
It shows trends that can help you quickly track leading indicators, including total income, gross profit, and net income—showing any growth or decline from your most recent 12 months of performance. With this, you can make strategic business plans and wiser decisions that drive sales, improve performance, and achieve other business goals.
3. Provides Up-to-Date Financial Information
Financial professionals like analysts and underwriters often perform valuation and credit analyses of companies throughout the year using TTM. When conducting this valuation and analysis, relying on year-end or calendar-year financial data won’t provide an accurate picture of the company’s current financial health—TTM will be more helpful.
4. Helps in Assessing the Financial Condition of the Company
Some companies can grow significantly within a year, while other businesses can trend down because of volatility. The use of TTM to evaluate a company’s financial health and progress will help both internal and external stakeholders assess the most current and accurate financial standing of a company.
5. Improves Comparability with Standardized Measurement
TTM allows for consistent comparison of financial performance across different companies, regardless of their fiscal year-end. It provides a level playing field for analyzing companies with different fiscal year structures. By spanning four quarters, TTM helps to smooth out seasonal fluctuations, offering a more accurate representation of underlying business trends.
6. Assists with Financial Modeling and Forecasting
TTM data serves as a basis for projecting future performance, aiding in financial modeling and forecasting. By adjusting TTM figures, analysts can assess the impact of different economic scenarios on a company’s financials. TTM data can also help identify potential risks and opportunities, such as changes in revenue or cost trends.
Frequently Asked Questions (FAQs)
What is TTM?
TTM is a financial metric that represents a company’s performance over the past 12 consecutive months. It provides a more up-to-date picture of a company’s financial health compared to traditional annual reports. TTM data can be calculated for various metrics like revenue and earnings.
Is TTM the same as YTD?
No, TTM is the most recent 12 months of financial data that may overlap between years. YTD (or year-to-date), on the other hand, is the most recent financial data from the start of the financial year up to the most current month.
Can you use TTM for financial reporting?
No, because TTM is only for internal use and is not part of the standard set of financial statements. Use the TTM only to measure internal performance and financial health.
What are the limitations of TTM?
TTM only reflects past performance and doesn’t predict future trends. While it can smooth out seasonality, it may not fully eliminate its impact. Also, TTM may not be directly comparable to annual figures for certain metrics.
Is TTM the same as annualized data?
No, TTM represents the actual performance over the past 12 months, while annualized data is an estimate of what the performance would be for a full year based on a shorter period.
Bottom Line
Using TTM gives business insights into its recent performance and current financial health. It also shows trends that can help external stakeholders determine the growth and decline of a business. The data from the TTM method is more current and seasonally adjusted, which can be helpful for business owners, potential investors, creditors, financial analysts, and auditors wanting to see more relevant measures.
