What it means
Annual accounts only update once a year, so by the time you read them they can be many months out of date. TTM fixes that by rolling the window forward: at any reporting date, you add up the latest twelve months of activity, wherever the financial year happens to start and end.
Because it always covers a full twelve months, TTM smooths out seasonality, which is the pattern of busy and quiet periods in a year. A retailer's strong December is always included, and so is its slow February, so you never compare a peak quarter against a trough quarter by accident.
Most people meet TTM in valuation conversations. A price to earnings ratio (the share price divided by profit per share) is often quoted on TTM earnings, and lenders or buyers frequently ask for TTM revenue and TTM EBITDA (earnings before interest, tax, depreciation and amortisation) when sizing up a company mid-year.
You can build TTM from the last annual figure by adding the current year to date and removing the same period from last year. You can also simply add the last four quarters together, which gives the same answer when quarterly data is available.
The main nuance is that TTM is backward looking, so it can lag a business that is changing quickly. A fast-growing start-up will look smaller on TTM than it does today, and a collapsing one will look healthier than it is.
TTM is also not a forecast, and it should be paired with forward-looking budgets or projections. Always check what is inside the number as well as the window.
One-off items, such as a large asset sale or a legal settlement, sit inside TTM profit until they roll out twelve months later unless someone adjusts for them.
In practice
Real-world examples.
Example
A founder is preparing for a conversation with a bank in September. The last audited accounts show $2,000,000 of revenue for the previous December, but the business has grown quickly since. She presents TTM revenue of $2,700,000 so the lender sees the current scale of the business rather than a stale year-end figure.
Example
An investor compares two restaurant chains on a price to earnings basis. One has a March year-end and the other has a December year-end, so their annual numbers cover different periods. Using TTM earnings for both puts them on the same twelve-month footing before he compares the multiples.
Example
A marketing agency owner wants to know whether a slow summer has really hurt the business. She calculates TTM profit each month for the past year and sees it dip from $420,000 to $390,000. Because every figure covers a full year, she knows the dip is a genuine trend and not just a seasonal wobble.
Formula
Calculation
TTM figure = last full fiscal year + current year to date - same period of the prior year to date
Suppose a software company has a December year-end and it is now the end of September. Its last full fiscal year revenue was $12,000,000. Revenue for the first nine months of the current year is $10,000,000, and revenue for the first nine months of the previous year was $8,500,000.
TTM revenue = 12,000,000 + 10,000,000 - 8,500,000 = $13,500,000.
Check using quarters: the last twelve months cover the fourth quarter of last year plus the first three quarters of this year. The fourth quarter of last year is 12,000,000 - 8,500,000 = $3,500,000, and 3,500,000 + 10,000,000 = $13,500,000, which matches.Case study
Seen in the real world.
Harbourline Logistics is a fictional freight forwarder with a June year-end. In March, it approached an illustrative buyer with its last audited revenue of $6,000,000, and the buyer's first reaction was that the number looked small for a company of its apparent size.
The finance manager rebuilt the figures on a TTM basis. Adding nine months of current-year revenue of $5,100,000 and removing the same nine months from the prior year of $4,300,000 gave TTM revenue of $6,800,000. She also noted that a one-off $250,000 insurance recovery sat inside the period and showed it separately.
The buyer used the TTM figure, less the one-off item, as the starting point for its offer discussions. The lesson is that TTM gave both sides a shared, current picture, and the clear labelling of the one-off item kept the number honest.
Watch out
Common mistakes.
- Treating TTM as a forecast. It describes what has already happened, so a fast-changing business can look very different a few months from now.
- Mixing windows when comparing companies, for example one firm's TTM against another firm's last fiscal year. Compare like with like or the ratio will mislead you.
- Ignoring one-off items inside the twelve months. A big asset sale or settlement can inflate or depress TTM profit until it rolls out of the window.
Questions
People also ask.
Is TTM the same as a fiscal year?
No. A fiscal year is a fixed accounting period, while TTM is a moving twelve-month window that ends at the latest reporting date.
Can TTM be used for balance sheet items?
Not really. Balance sheet figures such as cash are a snapshot at a single date, so TTM applies to flows like revenue, profit and cash flow.
What is the difference between TTM and LTM?
There is none in practice. LTM means last twelve months and both terms describe the same rolling window.
From the founder's library
Take it further with the book.
Build your financial confidence beyond this definition. Shihan's full-length guide, Accounting Fundamentals, takes the same plain-English approach and turns it into a complete, practical playbook for non-finance managers, business owners and students - with chapter-end quiz answers and presentation slides included.
25% off with code MMHQ25, applied at checkout. Priced in USD - checkout may show the equivalent in your local currency.
View the book and save 25%Related