Trailing twelve months (TTM) or Last Twelve Months (LTM) is a corporate finance and accounting term. It contains the company’s financial performance data for the past 12 consecutive months. It does not necessarily coincide with the fiscal or calendar year and starts from any point in time to go back to the 12 months preceding it.
In this post, we will further explore what does trailing 12 months mean, its associated benefits, and how to calculate trailing 12 months. So let’s get started!
Why T12 is important
Typically, financial analysts refer to the trailing 12 months data in cases where the data corresponding to the previous fiscal period (annual or quarterly) is either inaccurate or outdated to reflect the business’ present standing. As such, it is particularly essential during high-growth or dull periods where the figures have significantly deviated from the average.
Apart from the usage and advantage cited in the above trailing 12-month example, here are a few other aspects that highlight its importance:
- T12 data can help in offsetting the impact of any seasonal changes and can help ascertain the actual numbers by accommodating such fluctuations.
- You can leverage the TTM data findings to share crucial information with the investors and other stakeholders to gauge the organization’s health and condition.
- TTM information can lend critical insights while devising long-term and short-term goals that are practical and realizable.
- As it contains the latest updates, the 12 months trailing data could prove to be highly effective in making accurate data-driven decisions in comparison to the inputs of obsolete details.
- Businesses can use T12 data to track leading trends through indicators like total income, net income, and gross profit. Accordingly, executives can incentivize or mitigate their effects.
Steps to calculate and use T12 data
Now that you know what does trailing 12-months mean, let’s move on to the next part - how to calculate trailing 12 months!
Fortunately, you can achieve your goals in three easy steps, detailed as under:
Step #1: Define the goals
You can use the TTM to calculate a range of variable factors and situations to find their corresponding results. You could use it to calculate revenue or sales figures. Hence, before you break open the trailing 12 months calculation excel sheet, you need to clearly define your goals and map the related key performance indicators (KPIs) that will quantify and measure the variations.
Generally, the TTM report contains an analysis of any of the following documents:
- Income Statement
- Balance Sheet
- Cash Flow Statement
Step #2: Apply the TTM formula
The standard TTM formula for a period, say ‘t’, where ‘t’ indicates a quarter (or four months), is as follows:
T12(t) = Q(t) + Q(t-4) + Q(t-8) + Q(t-12)
Suppose you are required to calculate the TTM for the month of May 2020. In this case, consider that the following details are available about Company A:
- Q2 (2019): $74.9 million
- Q3 (2019): $55.8 million
- Q4 (2019): $63.3 million
- Q1 (2020): $58.0 million
Accordingly, the TTM for May 2020 works out to be:
TTM(May 2020) = Q1(2020) + Q4(2019) + Q3(2019) + Q2(2019)
TTM(May 2020) = $58.0 + $63.3 + $55.8 + $74.9
TTM(May 2020) = $252.0 million
Similarly, if you were to calculate the TTM revenue in November of 2020, you would have to add the quarterly revenue of Q3, Q2, Q1 of 2020, and Q4 of 2019.
While the above trailing 12 months example is a quarterly computation, some analysts may report on the annual figures. In that case, the formula gets adjusted accordingly.
Furthermore, you can follow the above formula for the TTM calculation from Income Statements and Cash Flow Statements. However, in the case of Balance Sheets, for TTM calculation, you can simply directly refer to the balance sheet as it will offer a snapshot of the total assets, equities, and liabilities for the past 12 months.
Step #3: Analyze the findings
Now that all the T12 details are readily available, it is all about analyzing the same and reporting on what you observe!
T12 in real estate
You can use the TTM methodology to analyze the performance of any property for the 12 months of its operation. Typically, it is used to monitor multifamily properties as these are short-term leases. However, you can also use it to analyze the monthly/quarterly/annual performance of office properties and retail properties for shorter durations.
Through the T12 data reports, lenders and investors can get an overview of the property’s performance and how they can enhance its value.
Automating the T12 creation process
While the T12 technique comes with its fair share of advantages, the practice can be rather cumbersome given that the calculation utilizes inputs collected from monthly, quarterly, semi-annual or annual reports. As such, it involves a large amount of data compilation and computation, which can be prone to errors.
Hence, the best way to extract useful insights with no room for errors would be through the automation of the process. If you are looking for a TTM automation software solution, Docsumo has you covered. From real-time data calculation to detailed report generation, we can make it all happen automatically.
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