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LTM Revenue

 

LTM: Last Twelve months is also titled as trailing or rolling twelve months (TTM). It accounts for the company’s financial performance by going through the financial ratios such as debt to equity, returns on equity and so on. LTM assesses the performance of the company for immediately preceding 12 months. In order words, LTM acts as a mirror where the company can see its most recent performance and enables the company to make strategies for the future. It showcases the whole past year performance, rather than quarterly or half-yearly that can adjust with the yearly attainments.  Though 12 months is a short span of time, yet it illustrates the latest performance of the company. For example, The LTM revenue of the company for the month of August entails the revenue from September previous year till August this year.

Depending on various economic and social parameters like climatic impact, conflict among union and others there might be uncertainties, which could possibly have an impact on the company’s performance. Therefore, LTM draws a reliable conclusion and average out the impact of such parameters. For example, The balance sheet of the company remains unaffected by any of such parameters, as it is framed at a static time and date.

How to Calculate LTM Revenue?

Analysts use LTM revenue to evaluate the value of the firm or to rate it like neutral, below average and so on. Evaluation classifies the potential growth of the company and compares it with the peers. Furthermore, to gauge the latest trend of a company, the company’s previous 12 months performance is compared with the performance of the peer companies. To ascertain the company’s financial ratio, LTM assesses the latest trend. For a US-based company, LTM figures are calculated by the company’s 10-K and 10-Q reports.

Suppose you need to calculate LTM revenue for the period ending on March 2018. “April 2017 to March 2018” indicates the LTM period. A company’s quarterly revenue amounted for $10 on 31/3/2017 with yearly revenue $25 on 31/12/2017 and quarterly revenue $12 on 31/3/2018. The calculation of the previous 12 months’ revenue ending on 31/3/2018 is ($25+$12-$10) = $27.

LTM Revenue

Why Does Analyst consider LTM a reliable parameter?

  • LTM indicates the current trend of the financial performance of the company.
  • It helps to overcome the misleading fact, as its figures focus on current trends and not the fiscal or annual statements numbers.
  • Last twelve months is quite reliable and commonly used method by the analyst for comparison among the peers
  • LTM enables accuracy and viable facts in the event of an acquisition
  • It commits a more relevant measurement of price to earnings ratio.

LTM represents an appropriate and true picture of finances, without any dependence on economic and social factors. Further, LTM uses financial ratios to ascertain the true value of the company like eps and dividend yield. An alternative method for LTM evaluation is on Pro-Forma basis. Besides the past 12 months of performance, LTM also includes the impact of any specific event that might have occurred. This event can be the induction of a new product, acquisition or expansion of manufacturing unit. Pro-forma indicates the picture of finances if a specific event had taken place.

References:

https://www.divestopedia.com/definition/6563/last-twelve-months-ltm

https://corporatefinanceinstitute.com/resources/knowledge/finance/ltm-revenue/

https://corporatefinanceinstitute.com/resources/knowledge/finance/last-twelve-months-ltm/

https://www.investopedia.com/terms/l/ltm.asp

 

 

 

Last updated on : April 27th, 2019

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