As any trader knows, navigating the stock market can be difficult at the best of times, however, perhaps the most confusing aspect of the stock market is the sheer number of acronyms that you may encounter, and even for an experienced trader.
It can be hard to keep up with the ever-increasing amount of acronyms.
So if you’re a trader, either new or old, here’s a guide as to what TTM stands for in stocks, and what it means for you as a trader.
What Does It Stand For?
In financial terms, TTM simply stands for “trailing twelve months”, which is in reference to the company’s performance over the previous 12-month period.
So What Does It Mean?
Unlike other terms in finances, TTM doesn’t refer to data within a fiscal period or calendar year, instead, it’s just the twelve months period previous to the report.
TTM is commonly used when the data or information for the fiscal period wouldn’t be accurate for the report or is otherwise out of date, and therefore wouldn’t be an accurate representation of the company’s current standings.
Examples of when this is useful w4ould be during either lulls or high-growth periods for the company, especially where the numbers may be skewed significantly.
Because TTM is such a versatile term, it can be calculated using various different data, so it’s imperative that you fully understand the information that has gone into the figures that you’re observing, and what the objective of the initial calculation is.
This data can come from anywhere, income statements, balance sheets, and even cash flow statements, all of which can be transferred between a ratio and a report to make viewing it easier.
Why Do Businesses Utilise TTM?
For businesses, TTM allows them to compare and contrast between different time periods. Helping businesses to gain a general picture of their performance with little impact from any unique changes or effects of seasonal fluctuations.
It essentially allows you to remove any anomalies from influencing your data.
Why Is TTM Important?
If a business’ quarterly or annual numbers have seen a rapid change or otherwise out of date, TTM helps reduce the impact of any anomalies in any data.
This data is important for businesses, and is especially helpful when sharing data with potential stakeholders and investors as it allows them to see a clear view of the company’s situation.
Internally, it helps to make long-term decisions and plans for the future of the business, as well as short-term plans too.
TTM data means that decisions are made as a result of the company’s current situation, whereas without it they may be made on outdated or invalidated information due to various anomalies in income.
What Can TTM Measure?
What you measure will predominantly be decided by your goals, as the data TTM produces can be applied to a wide variety of reporting and situations.
KPIs (Key Performance Indicators) tend to be the obvious reference point.
But calculating your TTM can help assess whether you’re achieving your goals and targets, without having to worry about any disruptions in data from lag or from any anomalies that may crop up due to any particular occasion or seasonal variance.
TTM also allows you to observe your revenue growth as well as your margins, helping to minimize some of the volatility that is so commonly seen throughout comparisons of different seasons and sales periods.
TTM can occasionally be utilized to analyze price-to-ratios, as well as sales figures, all of which can prove to be interesting to both your current shareholders, as well as potential investors.
Examples of TTM
Since TTM has such a wide range of data that it can be applied to, here’s an insight into how TTM can be applied to yields, revenue, and Price/Earnings ratios.
Revenue And TTM
This is simply the total revenue from the business’ past 12 months of trading. For a bank, their TTM revenue would consist of their interest income and fees.
Whilst a manufacturing firm or retail firm would analyze net sales. Ultimately it provides a much more comprehensive picture of the company’s earnings than a quarterly report would.
Yield And TTM
Whether it’s a mutual fund or a exchange-traded fund (Otherwise abbreviated to ETF), a TTM Yield is a measurement of what percentage of income that the security has returned to the investors over the 12 month period.
For funds, the TTM yield is calculated by evaluating the weighted average of yields that comprise the portfolio of assets.
TTM And Price/Earning Ratios
Sometimes referred to as trailing P/E, it measures the P/E ratio earning of a company over the previous 12 month period. Calculating it is easy, divide the current stock price by the earnings per share (Or EPS) of the company for the last 4 quarters.
Analyzing the trailing P/E can let investors understand whether the stock is expensive (see also ‘What Are The Most Expensive Stocks?‘) comparative to its earning potential.
TTM And Equity Research
Publicly traded companies release their financial reports on a quarterly basis, usually in the form of security filings.
The financial statement section of these reports often features metrics containing the company’s TTM, which is then updated on a quarterly basis as per the GAAP (Generally Accepted Accounting Principles).
Final Verdict
Ultimately, many view TTM as an incredibly powerful tool, and is an excellent indicator of a company’s potential as well as their performance.
It’s position as an incredibly popular metric is a result of its covering of a very useful time frame, as well as being a prerequisite.
A 12 month period is a standard time frame for analysis, especially in financing, but companies don’t report their yearly earnings for the first 3 quarters of the year.
So, the TTM metric is a clear standard for companies and is perhaps one of the most helpful metrics to analyze in financial reporting.
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