In finance, there are a couple of terms that small business owners and individuals in the sector should know and understand. Most words that are frequently used in business generally, do you know the exact meaning of all of them? Perhaps, you may think it isn’t necessary to know them. Well, if you don’t know what most words mean in finance, then you may find it difficult to apply them in the course of your finance journey. Based on the scope of this post, we’ll be focusing on TTM; a term used in business, but the aim is to reveal what it means in finance. At the end of the post, we’ll learn
- What is TTM
- The role of TTM in finance
- How TTM is calculated
By strictly acknowledging the learning points of this post, let’s dig deep into the meaning of TTM in finance and its impact on most companies.
What is TTM?
You’ll agree that every standard company has a financial record with a timeline of about twelve months and up to the time where the data is collected. This does not necessarily mean the financial record here is the fiscal year document. TTM is an acronym that stands for “Trailing Twelve Months.” This term is simply an approach used to demonstrate the performance of an organization in figures over a period of time. TTM alone can’t be used to determine the financial standing of a company, hence, it is calculated using diverse financial data from the current twelve months proceeding.
With TTM figures that have been gathered appropriately, you can view and understand an updated financial record for the last four quarters. When you come across the term TTM, you need to note that the first “T” stands for trailing, which means past or previous (according to the long man dictionary). Therefore, the definition of the term becomes pretty much clearer. You need numbers from the past to generate TTM instead of seeking metrics that predict estimates for the future.
Most financial analysts and company stakeholders use TTM to dissect the churn of financial records and data including figures from cash flow statements, numbers from a balance sheet, and metrics from the income statement. At the point where a business needs to be valued that isn’t bound by the mercies of financial documents and schedule, then a TTM would be suitable for that purpose.
The Role of TTM in Finance
The processes in finance are incomplete if no metrics are showing appropriate information regarding a company in an accepted format. As a business owner, TTM can help you understand the financial standing of your organization to a large extent at a stipulated time. The role of TTM in finance is systematic and it is essential whenever the company’s annual metrics are outdated or when the company experience spike in the profit or growth curve in recent time.
The role of TTM in finance is to keep track of financial metrics and data that will be useful when there is a need for comparison of performance between periods. As mentioned earlier, when TTM is properly carried out in an organization, stakeholders and other parties involved will have a clearer picture of the influencing factor for growth in the company.
In order words, TTM in the finance aspect of a business fairly provide key performance indicator and sort out affiliating high charges in the long run. Most companies use concurrent TTM metrics to carry out financial evaluations internally, and this helps to predict future directions and growth.
How TTM is Calculated
No finance calculation is straightforward, all you need is the right method and formula to calculate what is expected. Here, the approach to calculating TTM is quite less complicated depending on your knowledge of finance. One of the methods to calculating data from the trailing twelve months is to add up to three months that divide the fiscal year by the last four quarters.
For instance; if you intend to make a TTM calculation in April 2021, you would begin with Q1 which ended in March 2021. Then, you’ll add the three future quarters. (it means you will add Q2, Q3, Q4, and Q1 of the next year.)
The mathematical formula for calculating TTM
TTM = Latest Q + Q1 (recent) + Q2 (recent) + Q3 (recent)
TTM = Most recent quarter + Last full year – Corresponding quarter last year.
Sometimes, companies shouldn’t calculate TTM the period when their annual report was recently released. Therefore, this scenario implies that TTM data is the same as the financials in one full year.
As a business owner or stakeholder, it is essential to have controlled access to every financial information that will help influence the financial decision of the organization. Therefore, when the time to make decision approaches and the most recent financial statement isn’t available, then using the TTM numbers is a suitable option. Thank you for reading this post, and we hope you understand what TTM means and derive other valuable information beneficial to your business.