In this tutorial, we're going to discuss a trailing 12 month or TTM calculation. We'll go through real financials to understand how TTM works. 

TTM Definition

Trailing 12 months or the last 12 months shows a 12 month period for a certain metric like revenue. If I say TTM revenue, that means the revenue over a 12 month period or four quarters. 

Why Is TTM Important?

Why do we look at that? In finance, we're interested in full-year periods. In three out of four periods in each year, a company doesn't report its full-year cash flows. Only when they report a 10-K do they show you a 12 month period. For other reports, let's say Q1, they show you a three month period. In Q2, they'll show you a three month period and a year to date, six month period. And in Q3, they'll show you a three month period and a year to date, nine-month period. 

But again, in finance, we're interested in 12 month periods. So, a TTM calculation is necessary in three out of four periods in a year. And here's how you calculate it. 

TTM Calculation

TTM equals the most recent year to date period, plus the last complete fiscal year minus last year's year to date period. Make sure to use year to date and not just the latest quarter. This makes a difference in the second and third quarters each year as I'm about to show with a graphical representation. 


Let's say a company has reported its Q2 2020 earnings and you want to calculate the LTM earnings. What you would do is you would take year to date for the most recent period, which would be Q1 and Q2. I'm going to highlight that. Then you would take the last year, the complete fiscal year. I'm going to highlight that. Then you would subtract last year's year to date period.

I'm going to unhighlight last year's Q1 and Q2. The result is that I get the last four quarters or the last 12 months, as you can see here, I have the last four quarters. That's what you're doing when you're calculating an LTM or TTM. 

Now let me explain the common mistake that people would make. They would say, instead of the year to date period, let me take the latest quarter, which is OK only in Q1, but this is Q2. So let's say we made that mistake. I took the latest quarter, then I took the last year's complete fiscal year.

And then I subtracted last year's quarter, the equivalent quarter last year. As you can see, that would not get us the last four consecutive quarters. It would get us Q2, skip Q1 and then get last year's Q4, Q3, and Q2. That is incorrect. That's a common mistake that people make. They don't use the year to date. Instead, they use the latest quarter. Now, in Q2 and Q3, that would lead to a major mistake. And you don't want to make that mistake. 


Now, one other question to note here before we get into examples. Why not just multiply the latest quarter by four? I mentioned that we want a 12 month period of a three month period. Why not just multiply by four? The answer is seasonality. You can't assume that every quarter has the same amount of cash flow or revenue. For example, retailers generate a lot more sales in the holiday period than they do any other quarter. So multiplying by four if you had just a Q4 would lead to a way higher total revenue or total cash flow number. 


Let's look at a couple of examples now, starting with Kohls. If I type in Kohls, KSS and I go to the latest financial report, I'm going to get the TTM revenue. Well, what I notice here is this is a 10-K. And in the 10-K, the company reports a full year of cash as I scroll down to the income statement and I already get a full year of revenue here. There is no need to make an adjustment or a TTM calculation if the latest report that a company filed was its 10-K. 

So for Kohls, the TTM revenue is nineteen point 9 7 4 billion dollars. It's dollars in millions. So I just started with that example to illustrate that a calculation is not necessary when you have a fiscal year, full fiscal year report.


Let's look at an example where you would need to conduct a TTM calculation. Apple. Apple's latest report is Q1 2020. It had completed a twenty 19 report, but it had since filed a Q1 report. Let's calculate the TTM revenue. I'm going to scroll down to the income statement and I'm going to pull the revenue for the latest three months.

Now, it's OK to pull three months here because that is the year to date in Q1. So this is Q1 2020 revenue. I'm going to take Q1 2019 revenue and paste it in here.

Just know here that even though this is December 29, 2018, Apple considers that Q1 of twenty nineteen. So the fiscal year doesn't match with the way that Apple calls their fiscal years to get the latest year. I'm going to go to similar tables. I'm going to go to fiscal year twenty nineteen and take the revenue for the latest completed year. That is the fiscal year twenty nineteen to calculate the TTM revenue.

I take Q1 2020, I add the last completed year and I subtract Q1 at twenty nineteen. That gets me to Apple’s TTM revenue. That's Apple's revenue over the last twelve months.

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