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In finance terms, TTM stands for “trailing twelve months” and refers to figures that represent the company’s performance over the past year.
What does TTM mean?
TTM as a term is notable because it doesn’t necessarily refer to data that falls within one fiscal period or calendar year – it’s simply the twelve months preceding the report in question. This is often used where the information for the previous fiscal period is significantly out of date and wouldn’t represent an accurate and up-to-date reflection of the company’s current standing. This is particularly important during quiet periods or high-growth periods, where the numbers could be significantly affected.
Because it can be used in a variety of different ways, your TTM can also be calculated with a range of different data, so it’s important to understand what information has gone into reaching any figure you’re looking at and what the goal of the calculation is. The numbers can come from balance sheets, income statements, or cash flow statements and can be transferred into a ratio and/or a report for easy viewing.
The importance of TTM in finance
As mentioned, the TTM figures are particularly important at a time when your annual or quarterly numbers are out of date or when your company has seen a significant change in its growth or profits in a very recent period. TTM data also helps mitigate the impact of seasonal changes and give you a clearer picture of the overall performance of your company.
Your TTM information is particularly useful for sharing with stakeholders and investors as it helps give a clear picture of the company’s current situation. It’s also vitally important internally, particularly when making plans for the future and both long- and short-term goals. Having TTM data helps ensure decisions are being made on the company’s current reality rather than outdated information which may have come from a very different climate – as evidenced by the sharp impact experienced by many businesses in 2020.
Why do businesses use TTM in financial statements?
Keeping track of your TTM data can be particularly useful when it comes to comparing different periods. It allows you to get a general look at your business’s performance with limited impact from one-off or seasonal changes and can then be used as a direct comparison with earlier periods. This gives you a clearer idea of overall growth with minimal anomalous influence.
How do you work out your business’s TTM?
When working out your business’s TTM data, the first decision to be made is what you’re looking to measure. In many cases, this will be sales or revenue figures. If your financial statements are produced annually or in a set financial period, you may need to chop-and-change different quarterly numbers to get an accurate reflection of the chronological period you’re looking at.
What can be measured in TTM?
TTM data can apply in a wide range of situations and reporting, so what you’re measuring will largely depend on your goals. One obvious point of reference is your key performance indicators (KPIs). Your TTM data can help you assess how well you’re achieving these targets without the lag that comes from previous figures or the potential impact of different seasons and occasions within that time frame.
Similarly, your TTM data can help you keep a better eye on revenue growth and margins and can help mitigate some of the volatility that’s often seen across different seasons and financial periods. It can even sometimes be used to analyze your sales figures and your price-to-earnings ratio, which can be of particular interest to your shareholders.
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