Definition: An abbreviation for Twelve Trailing Months, it is used to note when annual financial figures such as sales and profits are shown for the immediately prior 12 months and not the last complete year.
Example: Let’s say that past sales for JS Corporation are:
LAST YEAR
Quarter 1: $1.0 million
Quarter 2: $1.5 million
Quarter 3: $2.0 million
Quarter 4: $2.5 million
THIS YEAR
Quarter 1: $3.0 million
Quarter 2: $3.5 million
Quarter 3: $4.0 million
Let’s also say that it is sometime in November and we want to assess the corporation’s sales. It would be accurate to say that annual sales are $1.0m + $1.5m + $2.0m + $2.5m, or $7 million because that is the total sales for the last complete year. To calculate twelve trailing months of sales we would add the sales of the four most recently completed quarters as follows: $2.5m + $3.0m + $3.5m + $4.0m, or $13 million.
Investeach explains: In our example, we are 3/4 of the way through the current year and last year’s figures are rapidly fading into the past. By using the ttm approach, we are able to get a much more timely look at what the corporation is able to achieve in a year.
Although ttm indicates that we’re going to add up the figures for most recent twelve complete months, corporations do not ordinarily add up and report their monthly performance to the public. Therefore, it would be more accurate to express this as ftq, for four trailing quarters!
Finally, when producing a report with information calculated this way, one should identify the figure with the abbreviation next to it, such as “SALES (ttm)”.
Riddle me this:
1. What does ttm stand for?
2. Why does it provide a better picture of the corporation’s performance?
3. Identify the time of year when sales for the last complete year and sales (ttm) are the same. Explain why.