Financial Statement Analysis
- Profitability Ratios
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- ROCE Formula (Return on Capital Employed)
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- Return On Investment (ROI)
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- ROIC Formula (Return on Invested Capital)
- Return on Investment Formula (ROI)
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- Return on Total Assets Formula
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- DuPont Formula
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- Diluted EPS Formula
- Contribution Margin Formula
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- LTM Revenue
- Operating Expense Ratio Formula
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- Capitalization Rate
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- Comparative Income Statement
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- Markup Percentage Formula
- Ratio Analysis (17+)
- Liquidity Ratios (29+)
- Turnover Ratios (17+)
- Efficiency Ratios (7+)
- Dividend Ratios (9+)
- Debt Ratios (26+)
LTM revenue which stands for Last Twelve Months revenue (also known as trailing twelve months revenue) is the total revenue of a company in the twelve months prior to the date of measurement; this helps in valuation of the company during a certain period of time.
What is TTM Revenue / LTM Revenue?
- LTM revenue is an interesting concept. And every investor should look at how it works.
- LTM stands for last twelve months. These last twelve months revenue can also be called as TTM revenue (Trailing Twelve Months).
- When an investor wants to understand how a firm is doing financially, she uses LTM revenue as a measurement. And in most cases, firms prepare their financial reports for past twelve months (which is actually last 12 months).
- LTM Revenue/TTM Revenue helps us look at a profit for the whole year instead of just having a brief glance on quarterly profits.
LTM Revenue vs Quarterly Revenue – Which is better for Financial Analysis
Let’s understand this by taking an example.
Let’s say that Company Prince Toys Ltd. has the following information –
- TTM Revenue for the last year – $400,000
- Quarterly Revenue for the last quarter – $92,000
If as an investor we just look at the last quarter or for two quarters, we would get a recent figure. But the point is by looking at the recent figure, you’re skipping an important consideration.
By looking at quarterly revenue, you’re not able to judge whether the company has earned that revenue due to the seasonal reasons. It may so happen that due to the festive season, the firm has sold more toys than the rest of the year. Or on the other hand, it may sell fewer toys due to the labor problems, strikes etc.
As an investor, to understand a company’s financial health, you need to look at it holistically, not partially.
That’s why understanding TTM Revenue is more important than the Quarterly Revenue.
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Calculate TTM Revenue
If you’re a finance junkie, it would be quite easy for you. For investors who have just started out, this method would be useful to you on two bases –
- You would be able to calculate the LTM Revenue of any year of any firm.
- You would be able to compare the LTM Revenue of same/different firm/s whenever you get the figure.
Let’s look at the method of calculating LTM Revenue.
Oh Yes, Ice-cream Company has the following information for you –
|July to September||$50,000||–|
|October to December||$62,000||–|
|January to March||–||$54,000|
|April to June||–||$49,000|
|July to September||–||$57,000|
Find out the LTM Revenue for June 2016 and September 2016.
All we need to do is to add the quarterly revenues.
So, we will first calculate the TTM Revenue for June 2016.
- For calculating TTM Revenue for June 2016, we need to add July to September, October to December, January to March, and April to June.
- Here’s the calculation = ($50,000 + $62,000 + $54,000 + $49,000) = $215,000.
Now, we will calculate the TTM Revenue for September 2016.
- For calculating the TTM Revenue for September 2016, we need to add October to December, January to March, April to June, July to September.
- Here’s the calculation = ($62,000 + $54,000 + $49,000 + 57,000) = $222,000.
Calculating Last twelve months revenues for June 2016 and September 2016 have served a purpose. As an investor, you can now look at the quarterly revenues holistically (not periodically).
Since the LTM revenues average out the seasonal changes (if any) from quarterly revenues. As a result, LTM/TTM revenues provide more clarity to the investors before they ever get interested to invest in the company.
Even the balance sheet doesn’t get affected by the Last twelve months Revenue. The balance sheet is prepared at a single point of time no matter what happens throughout the year.
Use of LTM Revenue
Why investors and financial analysts use LTM Revenue? Here’s a small list –
- Last twelve months Revenue is considered more recent than the annual reports. If the investor looks at the annual report in the mid of the next year, she would only understand what happens during the last year. As a result, the first 6 months of this year will be skipped. But if she calculates LTM revenue, she would get the most recent figures of the company.
- Short-term measurements don’t serve investors and financial analysts. Revenue for the immediate year may not be a big chunk of time, but it serves the purpose.
- Financial analysts prefer TTM revenue because while acquisition, TTM revenue provides the most accurate value of the business.
- Last twelve months revenue allows the investors to compare the relative performances of similar companies under the same industry.
TTM Revenue / LTM Revenue Video
This has been a guide to TTM Revenues (also called as LTM Revenues) along with its calculations and examples. Here we also discuss why LTM revenue is very important for financial analysis.