Last Twelve Months (LTM)

LTM as a Company's Financial Metric

When it comes to analyzing a company's financial performance, investors and analysts often rely on various financial metrics and ratios. One such metric that provides valuable insights into a company's financial health is the Last Twelve Months (LTM) figure. LTM is a widely used measure that helps investors understand a company's performance over the past year. In this article, we will explore what LTM is, how it is calculated, and why it is important for financial analysis.

What is Last Twelve Months (LTM)?

Last Twelve Months (LTM), also known as Trailing Twelve Months (TTM), is a financial metric that represents a company's financial performance over the past twelve months. It provides a snapshot of a company's earnings, revenue, and other financial metrics over a specific period, allowing investors to assess its performance and make informed decisions.

Calculating LTM: An Easy Example

To calculate LTM figures, you need to sum up the financial data for the most recent four quarters. This includes the company's revenue, net income, earnings per share (EPS), and any other relevant financial metrics. By adding up the data from the past four quarters, you get a comprehensive view of the company's performance over the last year.

For example, let's say a company reported the following quarterly revenue figures:

• Q1: $10 million
• Q2: $12 million
• Q3: $11 million
• Q4: $13 million

To calculate the LTM revenue, you would add up these figures:

LTM Revenue = Q1 + Q2 + Q3 + Q4 = $10 million + $12 million + $11 million + $13 million = $46 million

Similarly, you can calculate LTM net income, LTM EPS, and other financial metrics by summing up the corresponding figures for the past four quarters.

Why is LTM Important?

LTM is an important metric for several reasons:

1. Reflects the most recent performance

By considering the past twelve months, LTM provides a more up-to-date view of a company's performance compared to annual financial statements. It captures any recent changes or trends in the company's revenue, earnings, and other financial metrics, allowing investors to make more informed decisions.

2. Smooths out seasonality

Many businesses experience seasonality, where their performance varies throughout the year. By using LTM figures, investors can smooth out the impact of seasonality and get a more accurate picture of the company's overall performance. This is particularly useful when comparing companies in different industries or when analyzing companies with significant seasonal fluctuations.

3. Provides a longer-term perspective

While quarterly or annual financial statements provide valuable insights, they may not capture the long-term trends and changes in a company's performance. LTM figures allow investors to analyze a company's financial performance over a longer period, helping them identify any underlying trends or patterns that may not be apparent in shorter-term data.

4. Useful for valuation purposes

LTM figures are often used in valuation models and financial ratios. For example, when calculating the price-to-earnings (P/E) ratio, analysts use the LTM earnings figure to determine the company's valuation relative to its earnings. Similarly, LTM revenue figures can be used to calculate the price-to-sales (P/S) ratio, providing insights into a company's valuation relative to its revenue.

Case Study: LTM Analysis of Company XYZ

To illustrate the importance of LTM analysis, let's consider a case study of Company XYZ, a technology company. Company XYZ reported the following financial data:

• Q1 Revenue: $50 million
• Q2 Revenue: $45 million
• Q3 Revenue: $55 million
• Q4 Revenue: $60 million

By calculating the LTM revenue, we can determine the company's performance over the past year:

LTM Revenue = Q1 + Q2 + Q3 + Q4 = $50 million + $45 million + $55 million + $60 million = $210 million

Based on this LTM revenue figure, we can analyze Company XYZ's growth rate, compare it to industry peers, and assess its financial health.

Conclusion: How good is LTM as metric?

Last Twelve Months (LTM) is a valuable financial metric that provides insights into a company's performance over the past year. By calculating LTM figures for revenue, net income, and other financial metrics, investors can gain a more up-to-date and comprehensive view of a company's financial health. LTM analysis helps smooth out seasonality, provides a longer-term perspective, and is useful for valuation purposes. By incorporating LTM analysis into their financial analysis, investors can make more informed decisions and better understand a company's financial performance.