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Trailing 12 Months

Definition

Trailing 12 Months (TTM) is a measurement of a company’s financial performance used in business and investment, looking at the last consecutive 12 months of data. It is often used to compare a company’s most recent fiscal period to its performance from the same period in the prior year. TTM gives a more current and accurate picture of the company’s financial health and operational efficiency.

Phonetic

The phonetics of the keyword “Trailing 12 Months” are “[ˈtreɪlɪŋ twelv mʌnθs]”.

Key Takeaways

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  1. Trailing 12 Months (TTM) is a measurement of a company’s financial performance used in the business and investment domain. It offers a snapshot of the company’s financial health over the past 12 months, rather than just the current or most recent fiscal year.
  2. TTM is frequently used in financial analysis as it helps in smoothing out seasonal or quarterly fluctuations in financial data, giving a more realistic picture of a company’s performance. This is particularly useful for potential investors or stakeholders to understand the business’s financial stability.
  3. However, while TTM is a useful tool, it does have its limitations. It does not account for future growth or potential changes in a company’s financial situation beyond the past 12 months. Therefore, it should be used in conjunction with other financial metrics and indicators for a comprehensive understanding of a company’s performance and potential.

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Importance

Trailing 12 Months (TTM) is a vital term in business/finance as it gives an insightful snapshot of a company’s financial performance over the past year, independent of a regular fiscal or calendar year. This measurement, which uses the most recent 12 months of data, offers a more timely and accurate reflection of a company’s current financial health, compared to annual reporting. TTM is commonly used in financial analysis, valuation, and forecasting since it can indicate trends, support comparisons with peers, and assist in projecting future performance. It’s significant for understanding flows of revenue, profits, earnings per share, and other financial metrics, hence often used by investors and analysts to make informed decisions.

Explanation

Trailing 12 Months (T12M or TTM) is a measurement of a company’s financial performance utilized by businesses, analysts, and investors to make decisions. TTM is especially effective in identifying trends, patterns, and making future projections about a company’s performance because it removes the effects of seasonality or short-term market fluctuations, and provides a more comprehensive, accurate view of a company’s financial health. In contrast to other methods that might focus on quarterly or annual periods, TTM captures the most recent 12-month period data, typically in relation to income, revenue, earnings, and cash flow among others that offer an ongoing ‘moving picture’ of performance.Often used in financial analysis and valuation, the trailing 12 months concept helps not only internal company management but also investors and analysts to evaluate businesses. It serves as a method of benchmarking a company against its past performance or compared to its competitors in the same industry. This can provide helpful and decisive insights when organizations contemplate mergers and acquisitions, as it gives a realistic evaluation of a company’s profitability and stability. Furthermore, patterns discovered in a TTM analysis of financial indicators can suggest potential concerns or opportunities for growth, delivering invaluable support for strategic decision-making.

Examples

1. Financial Analysis: Imagine a company named ‘ABC Widgets’ is considering acquiring another business, ‘XYZ Gizmos’. To assess the financial performance of XYZ Gizmos, ABC Widgets might review the Trailing 12 Months (TTM) financial statements. These would provide details about the revenue, net income, earnings before interest, taxes, depreciation, and amortization (EBITDA), and other key financial metrics for XYZ Gizmos over the past 12 months. This comprehensive overview helps ABC Widgets make an informed decision based on up-to-date data.2. Annual Reporting: For publicly traded company ‘TechTron’ , the trailing 12 months report is used to update its stockholders about the company’s financial performance within the annual report. It helps to provide investors with a clear gauge of how the company’s shares are expected to perform based on the financial results that span the last 12 months, whether they’re marking profit, loss, or standing at a breakeven point. 3. Employee Incentive Programs: A company ‘HealthHeal’ uses the Trailing 12 Months report to calculate bonus payouts or other incentive-based compensation for its employees. For instance, if the firm has a profit-sharing program that distributes bonuses based on the company’s annual net income, it may utilize TTM data to determine the most current, accurate figures for this distribution. This approach ensures that employees receive bonuses which reflect the company’s most recent performance, rather than relying on potentially outdated year-end data.

Frequently Asked Questions(FAQ)

What does the term Trailing 12 Months (T12M) mean in finance?

Trailing 12 Months (T12M) is a term used in finance that indicates the past 12 consecutive months of a company’s performance data, up until the last month. This term is often used to assess a company’s financial health.

Why is the Trailing 12 Months (T12M) period significant?

The T12M period offers a detailed and recent picture of a company’s financial performance, allowing investors and analysts to evaluate current and potential investments. Unlike quarterly data, T12M analysis minimizes seasonal fluctuations and provides a broader view of a company’s performance.

How is the Trailing 12 Months figure used in financial analysis?

T12M data is used in calculating financial ratios and metrics such as earnings per share (EPS), Price/Earnings ratio, and others. Investors and analysts use T12M figures to compare a company’s performance against its competitors over the most recent 12-month period.

Can the Trailing 12 Months be used for future projection?

T12M data reflects historical data and while it is crucial in financial analysis, it doesn’t account for future changes in market conditions or business operations. However, it may provide a basis for future predictions, when combined with other information.

How is Trailing 12 Months different from the calendar year?

Trailing 12 Months is different from the calendar year as it isn’t fixed to start in January and end in December. Instead, T12M reflects data from the past 12 consecutive months from the current date.

Where can I find the Trailing 12 Months data?

Trailing 12 Months data can be found in a company’s financial statements or earnings reports, which are often available on their official websites in investor relations sections, or on financial news and analysis platforms.

Related Finance Terms

  • Financial Reporting Period
  • Annualized Data
  • Earnings History
  • Performance Trends
  • Revenue Forecasting

Sources for More Information

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