Do you ever feel like the stock market is an intricate maze of complex terms and abbreviations? Then, one puzzle piece you've likely encountered is 'TTM'. What does it mean?
Standing for 'Trailing Twelve Months' and 'Time to Maturity, ' understanding TTM is a cornerstone of investing, whether you're a beginner or an experienced investor looking to enhance your an
With Wisesheets, we're committed to making TTM clear and understandable. This article will unpack its multifaceted meanings and demonstrate how to employ these insights to steer your investing journey positively.
Ready to empower your portfolio? Let's embark on a journey to decode this vital stock market term and elevate your investment wisdom.
What is TTM in the stock context?
Trailing twelve months
The first meaning of TTM is the trailing twelve months. TTM measures the twelve months prior to the most recent month, not the current stock price. Some also refer to TTM as TTM revenue. For example, if it is currently June 2019, TTM would refer to the period from July 2018 to June 2019. It's like an overview of the most up to date numbers that are seasonally adjusted.
This is important because it is a way to measure a company's performance over time. The reason why it is used is that different companies can have different fiscal years where they report financial results. For example, Apple's fiscal year is September 26th, whereas Amazon's is on December 30th.
Comparing performance across the previous four quarters is not ideal because it does not consider the possible effects of seasonal factors that affect important financial results such as earnings.
Therefore, TTM figures is a more accurate way to compare financial performance across companies because it considers the last 4 quarters of financial results from both companies to compare their most recent quarter and performance in a more accurate way.
Investors use TTM as they have a clearer picture of the TTM yield. The TTM yield is how much revenue is returned to investors over 12 months. And by knowing a company's trailing earnings, you can better understand this type of data instead of only using a previous year.
Trailing twelve months vs last twelve months
When learning about TTM, it's important not to mix it up with the Last Twelve Months (LTM). It's a common mistake within the industry, as both provide an overlook of a company's financial data.
Both TTM and LTM are great tools. However, despite sounding similar, they work in rather unique ways.
TTM includes the most recent 12-month period, updated to the most recent time frame to reflect how much revenue a company has made. Therefore, it's the most recent financial data. It's like a rolling snapshot of a company's financials, offering real-time context for investors.
In contrast, LTM refers explicitly to the previous fiscal year of the company's stock price. It presents a fixed year-over-year perspective, enabling you to see a company's performance in the broader scheme of things.
The differences between TTM and LTM aren't about better or worse—both are excellent financial reports. TTM provides a more accurate picture on a quarterly basis, while LTM offers a fixed historical view on past key performance indicators.
Term to maturity
The second meaning of TTM is term to maturity. This is the amount of time until a bond matures. It is the length of time from when the bond is issued until it must be repaid.
This is important because it affects the interest payments that the bondholder will receive. For example, a bond with a term to maturity of five years will have interest payments every year for five years. But a bond with a term to maturity of ten years will have interest payments every year for ten years.
The longer the term to maturity, the higher the interest payments will be. This is because the bond issuer will have to pay more interest to the bondholder for lending them the money for a longer period of time at a set interest rate that can fluctuate positively or negatively throughout this period.
However, the bondholder will also have to wait longer to get their principal loan money back. This means that there is a trade-off between higher interest payments and getting your money back sooner.
How is TTM used?
The Trailing 12 Months (TTM) is a powerful tool for assessing business performance. This metric analyses financial reporting, such as Earnings Per Share (EPS), to trace a company's growth trajectory.
For instance, if a company's EPS has risen from $0.50 (during the TTM period from July 2019 to June 2020) to $0.75 (in the TTM period from July 2021 to June 2022), it signals a robust 50% growth in a year.
Role of TTM in Making Investment Choices
Investors find TTM figures particularly useful while making key decisions. A stagnant or decreasing TTM could suggest potential issues, prompting the sell-off of shares.
However, an increasing TTM, such as the previous example, where the EPS escalated by 50% over a year, could represent a healthy financial state, prompting investors to buy or retain shares.
Leveraging TTM for Competitive Analysis
TTM figures offer invaluable insight when comparing companies in similar sectors or industries. You can determine which company is more prosperous by comparing financial factors like EPS.
For instance, when Company A has an EPS of $0.50, and Company B's EPS stands at $0.75, the latter exhibits a 50% better performance price to earnings ratio, indicating a stronger position.
Comprehensive Comparison on Financial Performance
Yet, it's important not to base your analysis solely on a single piece of financial reporting. When evaluating multiple financial reportings like EPS, revenue growth, and net income, a more complete picture emerges.
Here, the TTM methodology shines by enabling investors to perform a comprehensive, side-by-side comparison of these financial ratios across companies, thus facilitating a more nuanced understanding of overall performance.
TTM ratios used (regarding financial data)
The most important TTM ratios to know are:
- Earnings per share (EPS)
- Revenue growth
- Operating margin
- Net margin
- Return on equity (ROE)
- Return on assets (ROA)
- Free cash flow per share
- Dividend yield
Each of these ratios measures different aspects of a company's financial performance.
Earnings Per Share (EPS):
- What it tells you: Think of EPS as the profit for each share of a company you own. The higher it is, the more profitable the company.
- How it's calculated: It's simply the company's net income divided by the number of outstanding shares.
- What to look out for: A higher EPS is typically a good thing, but make sure you're comparing apples to apples – it's best to compare EPS between companies in the same industry.
- What it tells you: This one's all about sales. A higher revenue growth means the company's sales are increasing.
- How it's calculated: Subtract last year's revenue from this year's, divide the result by last year's revenue, and voila!
- What to look out for: High revenue growth usually means a company is doing well, but don't forget to check out the net income and cash flow too.
- What it tells you: This ratio shows you how much profit is left after all the costs of making and selling the products are deducted.
- How it's calculated: Divide operating income by net sales, and you have your operating margin.
- What to look out for: A higher operating margin means a more efficient company, but again, make sure to compare it with similar companies.
- What it tells you: This tells you how well a company turns its revenue into profit after everything – and I mean everything – is paid.
- How it's calculated: Take the net profit, divide it by total revenue, and that's your net margin, or otherwise known as profit and loss statements.
- What to look out for: A high net margin means a company is good at keeping costs under control, but remember to compare it with others in the same industry.
Return on Equity (ROE):
- What it tells you: ROE shows you how much profit a company is making with the money shareholders have invested.
- How it's calculated: It's net income divided by shareholder's equity.
- What to look out for: A higher ROE means a company is good at generating profits, but always compare with other companies in the same sector to get a true picture.
Return on Assets (ROA):
- What it tells you: ROA tells you how much bang a company gets for its buck – in other words, how well it uses its assets to make profits.
- How it's calculated: You guessed it – it's net income divided by total assets.
- What to look out for: A higher ROA means a more efficient company. But remember, it's important to compare ROA of companies within the same industry.
Free Cash Flow per Share:
- What it tells you: This figure tells you how much cash a company has left after it has paid off its expenses – the higher it is, the better the company's financial position.
- How it's calculated: Take the operating cash flow, subtract capital expenditures, then divide by the number of shares outstanding. This usually shown on cash flow charts.
- What to look out for: More cash means the company has more options – like paying dividends, buying back shares, or reducing debt. But like all these ratios, remember to compare it with similar companies.
Return on Invested Capital (ROIC):
- What it tells you: ROIC tells you how good a company is at turning capital into profits.
- How it's calculated: It's net income divided by the total of debt and equity.
- What to look out for: A higher ROIC is usually a good sign, but don't forget to compare it with the ROIC of other companies in the same industry.
- What it tells you: This one's for the income-focused investors – it tells you how much bang you get for your buck when you buy a share of the company.
- How it's calculated: You just divide the annual dividend by the current share price.
- What to look out for: A higher yield might be attractive, but if it's too high, it could be a sign that the company is in trouble and trying to keep shareholders happy.
Remember, these ratios give you a great overview of a company's financial health, but they don't tell the whole story. Make sure to look at all of them together and always compare with other companies in the same industry to get a more complete picture.
What is a good TTM ratio?
A common question we often hear is, "What is a good TTM ratio?" or "What are good TTM figures?". While it's tempting to wish for a one-size-fits-all "golden ratio", the reality is a bit more complex. The reality is that a "good" TTM ratio can depend on many factors, including the industry, the specific company, and even the financial climate.
That being said, here are some key ratios you might want to consider looking at:
- Price to Earnings (P/E) Ratio: This measures how much investors are willing to shell out for each dollar of earnings. While a lower P/E ratio could hint at an undervalued stock, it could also suggest doubts about the company's future. On the other hand, a higher P/E ratio might signify expectations of future earnings growth.
- Debt to Equity (D/E) Ratio: This ratio is a window into a company's financial leverage. A lower D/E ratio is typically better as it implies less dependence on borrowed capital for operations. However, what's deemed "low" can vary substantially across industries.
- Return on Invested Capital (ROIC): ROIC assesses how efficiently a company utilizes its capital to earn profits. In general, a higher ROIC is a positive indicator, signifying that the company is earning more profit per dollar of invested capital.
Remember, there isn't a single TTM ratio that's universally "good." Instead, these ratios should be examined against industry norms, past company performance, and projected growth trajectories.
TTM calculations for financial statements
In addition to looking at financial ratios, you can also use TTM to measure a company's financial statements. This includes the balance sheet, income statement, and cash flow in one financial statement together (see the guide on how to analyze each financial statement). Let's explore how TTM numbers are calculated for each financial statement.
The income statement financial items are straightforward to turn into TTM metrics. All you have to do is sum the last 4 quarters of sales volumes each line item, and you have the TTM value.
For example, if a company's quarterly revenue numbers for the past four quarters are $100,000, $120,000, $130,000, and $140,000 then the company's TTM revenue would be $100,000 + $120,000 + $130,000 + $140,000 = $490,000.
As you can see, calculating TTM data for the income statement is very simple and straightforward.
Using balance sheet figures is slightly different because you cannot just add the monthly statements for the last 4 quarters to get the TTM calculation. This is the case because the balance represents a financial position snapshot of a company at a particular period of time.
Don't worry, though. Getting the TTM data is very simple all you have to do is take the values from the last quarter. This is the most accurate way to calculate these numbers because the last quarter represents the most recent financial snapshot of the company, which is what TTM financials is used to represent
Cash flow Statement
The cash flow statement calculation is the same as the income statement, where you need to add the last four quarters of financial results to get the trailing 12 months (TTM). The key difference is that the cash flow statement measures cash inflows and outflows instead of profit.
For example, if a company's quarterly free cash flow numbers for the last four quarters are $100,000, $120,000, $130,000, and $140,000 then the company's TTM free cash flow would be $100,000 + $120,000 + $130,000 + $140,000 = $490,000.
How to calculate TTM ratios for a particular company
There are two ways to calculate TTM ratios. The first way is to look up the company's up-to-date financials on their website and then calculate financial ratios for them manually using their specific formulas. The second is by creating your own stock screener and getting the information from there. However, the problem with these approaches is that they quickly become overwhelming when you look at many companies simultaneously.
Thus the second and more efficient way is to use a service or site that already calculates these and other metrics already for you. For this option, you can visit a site like Yahoo Finance which includes many of these metrics already available and calculated.
However, for analyzing these metrics across multiple companies, which is where most of the value is realized, this method is very time-consuming and ineffective since you have to constantly look for the numbers and copy-paste them on a spreadsheet for every company you analyze.
How to calculate TTM in Excel
Investors often perform hands-on calculations of various financial metrics, including trailing 12 months (TTM), in spreadsheets like Excel. This knowledge is vital to understanding the performance of an investment.
Below we provide a comprehensive step-by-step guide on how to manually calculate TTM financials in Excel.
Trailing 12 months calculation in Excel
- Gather Data: The first step involves gathering quarterly financial data for the company you're investigating. To calculate TTM for any financial metric, you need the data from four consecutive quarters. You can gather this data using platforms like Yahoo Finance.
- Select the Metric: Decide which metric you want to calculate TTM for. This can be anything from revenue to net income. For this example, we'll use revenue.
- Input Data into Excel: Next, you'll need to enter the quarterly revenue data into an Excel spreadsheet manually. Suppose you have put Q1 revenue in cell A1, Q2 revenue in cell B1, Q3 revenue in cell C1, and Q4 revenue in cell D1.
- Calculate TTM: Now you're ready to calculate TTM revenue. In cell E1, input the formula "=SUM(A1:D1)". The 'SUM' function in Excel adds all the numbers in the specified range, giving you the total revenue over the past 12 months.
Term to maturity calculation in Excel
- Input Essential Dates: In your Excel spreadsheet, input the bond's issue and maturity dates. For example, if you put the issue date in cell A1 and the maturity date in cell B1.
- Implement the Formula: In cell C1, type the following formula: "=YEARFRAC(A1, B1, 3)". The 'YEARFRAC' function calculates the fractional year between the two dates. The number '3' in the formula instructs Excel to assume a year has 365 days, the standard bond convention.
- Interpret the Result: The result in cell C1 gives you the term to maturity in years.
While straightforward, manually gathering and inputting the data into Excel can be time-consuming and prone to human error.
Therefore you should highly consider using a service like Wisesheets, which provides you with all these ratios, financials, income statements and more in a TTM format so you can quickly get the data you need and find better investment opportunities.
Interpretation of TTM ratios based on certain factors
TTM ratios interpretation involves consideration of industry norms, as industries differ in their weighted average TTM ratios.
For instance, tech industry companies generally have higher Price-to-Earnings (P/E) ratios than utility companies due to the perceived potential for future growth in tech. It's equally vital to compare a company's TTM ratios across different time periods as they can fluctuate with changes in financial circumstances.
A rapidly growing company, for instance, will typically have higher TTM ratios than a stagnant or declining one. However, remember, TTM ratios are just one analytical tool among many when assessing a company's health.
Identifying Undervalued or Overvalued Stocks with TTM Ratios
Applying TTM ratios, we can evaluate the relative value of different companies within an industry. This comparison helps identify potentially undervalued or overvalued stocks. Let's consider an example where we compare the TTM ratios of five industry-similar companies.
For instance, Intel stands out with notable Return on Invested Capital (ROIC), Return on Equity (ROE), and EPS ratios, and it trades at a mere 7 times its earnings. These figures suggest that Intel might be undervalued.
However, spotting an undervalued company, such as Intel in this case, doesn't mean one should rush into investment.
Always remember to conduct your own in-depth research before making any investment decisions. Consider other potential factors that could influence this perceived drop in value, ensuring a comprehensive understanding of the investment landscape.
Does trailing 12 months include the current month?
No, the Trailing Twelve Months (TTM) analysis should not include the current month. The TTM data should only include the last full month. This means it captures data from the most recent full month and goes back a full year from that date.
Where can I find a trailing 12-month Excel template?
Excel templates for financial calculations are certainly available across the internet. However, they often require tedious manual data entry or API's like Yahoo, that require difficult setup. However, that's where Wisesheets, our own Excel and Google Sheets add-on, steps in.
Wisesheets operates as an advanced TTM template, directly importing the most recent financial TTM data into your spreadsheet (Without Coding). This eliminates the need for manual data inputs and difficult API configuration. So while Wisesheets may not look like your standard Excel template, it's an efficient and powerful tool that simplifies your analysis of TTM and other financial metrics.
What are the common mistakes to avoid when using TTM ratios?
Common mistakes include:
- Using incorrect time frames or data.
- Misunderstanding industry standards.
- Failing to compare ratios within the same sector.
It's crucial to use the most recent data, understand industry norms, and make like-for-like comparisons to ensure the accuracy of your financial analysis. For more information on how to achieve this, check out this ultimate guide to managing live and historical stock data.
What are the best TTM revenue ratios to look for when investing?
While the "best" TTM revenue ratios can depend on your investment strategy and the specific industry, some widely used TTM ratios include Price to Earnings (P/E), Debt to Equity (D/E), and Return on Invested Capital (ROIC). These can provide critical insights into a company's profitability, financial stability, and investment efficiency.
Why do different industries have different average TTM ratios?
The average TTM ratios can vary between industries due to several factors, such as industry-specific standards, different market conditions, and diverse business models.
For example, a tech startup and a manufacturing firm may have different Debt to Equity ratios because of their unique financial structures and business strategies. Therefore, it's crucial to consider industry-specific benchmarks when analyzing TTM ratios.
Boost Your Stock Analysis with Wisesheets
In a nutshell, this guide has illuminated the significance of TTM ratios, how to calculate them, and their role in studying the performance of publicly traded companies. Using these ratios, you can conveniently spot either undervalued or overvalued stocks.
However, remember that TTM ratios are just one piece of your investment analysis puzzle. Numerous other factors should be factored into your decision-making.
With Wisesheets, simplify your TTM data analysis. Effortlessly export and analyse your TTM data in Excel spreadsheets. Say goodbye to manually inputting data and hello to effortless TTM analysis.