What is LTM Revenue?
LTM stands for “Last Twelve Months” and is similar in meaning to TTM, or “Trailing Twelve Months.” LTM Revenue is a popular term used in the world of finance as a measurement of a company’s financial health. It reports or calculates the financial figures for the “past 12 months.” LTM or TTM Revenue shows a company’s performance in the past year rather than just seeing the quarterly figures and adjusting it for the full year.
It is possible that a certain quarterly period may be good or bad because of several factors, such as seasonal impact, labor problems, high sales during the festive season, etc. So LTM figures are used to average out the effects so proper conclusions can be reached.
A balance sheet is never affected by this calculation, as a balance sheet is prepared on a certain date and at a single point of time, regardless of the events throughout the year.
Example of LTM Revenue
For the period ending August 2017, LTM period will be from “September 2016 to August 2017.”
The LTM revenue is used especially by analysts and acquirers while valuing the firm or rating it as Overweight, Neutral, etc., as they want to see the company’s growth potential and performance in relation to its peers.
|Oct - Dec 2015||Jan - Mar 2016||Apr - June 2016||July - Sept 2016||Oct - Dec 2016|
LTM Revenue for September 2016: 100 + 120 + 140 + 150 = 510
LTM Revenue for December 2016: 120 + 140 + 150 + 200 = 610
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Why do Analysts use LTM Figures?
- LTM is considered useful in assessing the most recent business performance indicative of the company’s current trend.
- LTM figures are more current than the fiscal or annual financial statements, which helps avoid potentially misleading short-term measurements.
- LTM figures compare the relative performance of similar companies within an industry or sector.
- LTM figures provide a more accurate value of a business in the event of an acquisition.
- LTM gives a relevant measurement of P/E ratio.
To learn more about financial analysis, see the following resources from CFI.