LTM Revenue

What is LTM Revenue?

LTM stands for ‘Last Twelve Months.’ It is used by financial terminals such as Bloomberg and Yahoo Finance to show the revenue earned by a company in the last 12 months. This can also be phrased as TTM, which means (Trailing Twelve Months).

Companies report quarterly or semi-annually. These reports are called 10Qs and 10Ks. In these reports, companies include financial statements like the income statement. On the income statement, the top line is revenue.

Income statements are generally reported annually, but in a 10Q, they’re reported quarterly. TTM can be helpful in these quarterly reports because it doesn’t align with the beginning of the last period. Instead, the 12-month period could correlate with any four quarterly periods.

LTM Revenue is often a metric used to display a company’s financial health over the past year.

Quarterly figures can be affected by various reasons like 

• labor problems, 
• supply chain issues, and 
• cyclical revenue periods.

Using TTM Revenue is a way to average the effects, leading to better conclusions.

The formula for LTM Revenue is as follows:

LTM Revenue = Most Recent Quarter Figures + Most Recent Annual Figures - Figures in the Corresponding Quarter 12 Months Before the Most Recent Quarter

Although a 12-month period may seem like a short period to analyze a company’s financial health, it is a metric that illuminates the company’s most recent financial performance. TTM Revenue shows the company’s current state when dealing with revenues. 

LTM Revenue Calculation

Depending on the available data and the required level of precision, a number of approaches can be used to calculate LTM (last twelve months) revenue. Here are a few typical techniques:

1. Direct Summation: In this technique, the revenue totals for the last twelve months are added together. If you have access to monthly revenue data, it's really simple. As an illustration:

LTM Revenue = Revenue(Month 1) + Revenue(Month 2) + ... + Revenue(Month 12)

2. Trailing Twelve Months (TTM): TTM revenue is computed for the most recent twelve-month period, independent of the calendar month, and is comparable to LTM revenue. When monthly data is unavailable, or you need to compute revenue for a certain time frame, you'll frequently utilize this method.

3. Interpolation or Extrapolation: When data is unavailable for the full year, you can estimate income for the missing months by extrapolating (estimating values beyond known data points) or interpolating (estimating values between known data points) using the available data.

4. Using Quarterly or Annual Data: In the event that monthly data is unavailable, you can approximate revenue for the twelve-month period by adjusting quarterly or annual revenue statistics. For instance, suppose you have data for the quarter:

LTM Revenue = (Q4 Revenue + Q3 Revenue + Q2 Revenue + Q1 Revenue) - Q1 Revenue from the previous year

5. Rolling Average: Determine the average revenue for the last 12 months, adding the most current month to the computation each month and removing the oldest month. This gives a mellowed-out picture of the trends in revenue over time.

6. Weighted Average: Based on variables like seasonality or industry patterns, assign weights to each month's income. You may, for instance, give months with historically greater revenues a larger weight and months with historically lower revenues a lower weight.

7. Regression Analysis: Use statistical techniques such as regression analysis to model revenue trends over time and forecast LTM revenue based on historical data. This approach requires more advanced statistical analysis software and abilities.

Example of LTM Revenue

Suppose we have a company called ABC Inc. that operates in the technology sector. Here are its monthly revenue figures for the past twelve months:

• May 2023: $1,000,000
• June 2023: $1,200,000
• July 2023: $1,300,000
• August 2023: $1,400,000
• September 2023: $1,600,000
• October 2023: $1,700,000
• November 2023: $1,800,000
• December 2023: $1,900,000
• January 2024: $2,000,000
• February 2024: $2,100,000
• March 2024: $2,200,000
• April 2024: $2,300,000

Direct Summation:

LTM Revenue = $2,300,000 + $2,200,000 + … + $1,000,000

LTM Revenue = $25,400,000

Trailing Twelve Months (TTM): We can also calculate the TTM revenue, which is the revenue for the most recent twelve-month period, regardless of the calendar month.

TTM Revenue = $2,300,000 + $2,200,000 + … + $2,300,000

TTM Revenue = $25,400,000

Average Monthly Revenue: We can calculate the average monthly revenue over the past twelve months and then multiply it by twelve.

Average Monthly Revenue = ($1,000,000+$1,200,000+…+$2,300,000) / 12

Average Monthly Revenue=$1,808,333.33

LTM Revenue = $1,808,333.33 × 12

LTM Revenue=$21,700,000

Uses of LTM Revenue

LTM (last twelve months) data is used in investment banking, valuation, and financial research in a variety of ways. This includes LTM revenue. This is a summary of the typical applications of LTM:

1. Evaluating Current Trends

LTM figures present the most recent sales or earnings data to give an overview of the company's current performance. This is useful for trend analysis and determining whether current quarters have performed better than earlier ones, suggesting future growth opportunities.

2. Financial Reporting Comparability

Businesses frequently have distinct fiscal year ends, which can make direct comparisons difficult, particularly in businesses that depend on seasonality.

By standardizing the comparison period, LTM ensures a more equitable foundation for assessing businesses in the same industry.

3. Investor analysis and valuation

Investors rely on LTM statistics for a number of valuation metrics, including the Price-to-Earnings (P/E) ratio. 

4. Merger and acquisition valuation

Investment banks, like Morgan Stanley and Goldman Sachs, use LTM data to provide current valuations during mergers and acquisitions.

Applying multiples to LTM earnings metrics such as EBITDA can ascertain the target firm's enterprise value, which offers a reliable foundation for purchase negotiations.

5. Fundamental Analysis

LTM numbers are essential to fundamental research since they let investors evaluate a company's performance and financial standing over the most recent twelve-month period. This includes evaluating revenue growth, profitability, and overall financial stability.

Benefits of LTM Revenue

Several benefits are provided by LTM (last twelve months) revenue for financial analysis and decision-making.

1. Timeliness

Compared to annual or quarterly data, long-term money (LTM) revenue offers a more recent picture of a company's revenue performance. Investors and analysts can benefit most from this timeliness as they need current data to make well-informed decisions.

2. Smooths Out Seasonality

Using data from the most recent twelve months, LTM revenue, as opposed to quarterly or annual revenue numbers, helps lessen the influence of seasonality. This smoothing effect provides a more consistent and accurate indicator of the company's revenue success over time.

3. Comparability

LTM revenue simplifies comparing revenue performance within the same industry or sector by standardizing the comparison period across businesses.

4. Reflects Business Momentum

A company's LTM revenue reflects the latest trends and momentum in the industry. It provides important information about the company's present trajectory by reflecting any recent increases or decreases in sales performance.

5. Forecasting

LTM revenue is useful input for predicting future revenue patterns. Analysts' ability to extrapolate LTM revenue data to anticipate future performance and estimate prospective revenue growth or contraction can aid strategic planning and investment decisions.

6. M&A Valuation

LTM revenue is frequently employed in valuing mergers and acquisitions. LTM revenue data gives purchasers a current and thorough understanding of a target company's revenue, which they can use to evaluate the company's financial standing and estimate its valuation.

Drawbacks of Using LTM Revenue

Using LTM (Last Twelve Months) data has a number of disadvantages, which include:

1. Seasonality Impact

For firms with strong seasonal trends, such as retail organizations, LTM data might not adequately reflect seasonal variations in revenue or earnings.

Therefore, seasonal factors that cause short-term fluctuations might skew the LTM figures, potentially producing inaccurate evaluations of a company's financial health.

2. Timing of Acquisitions

If an acquisition happens in the middle of the fiscal year, LTM data might not adequately represent the financial impact of the transaction. The back-weighted revenue of acquired companies may go unnoticed by the LTM metric, which could cause errors in the overall performance calculations.

3. Time Limit

Twelve months might not be enough to give a full picture of a company's performance, especially for companies that have longer cycles or are more vulnerable to large swings in the market.

4. Manual Calculation Hassle

Calculating LTM statistics can be difficult and time-consuming when data is not explicitly provided by financial reports. It frequently requires gathering and examining previous financial accounts, which aren't always immediately accessible or readily available.

5. Possibility of Misinterpretation

Relying exclusively on LTM data might result in misinterpretations of a company's financial health if appropriate context and knowledge of underlying causes are not understood.

Investor perceptions of the company's success may be distorted by investors missing significant nuances and patterns.

Difference between LTM and NTM revenue

A comparison of LTM (Last Twelve Months) revenue and NTM (Next Twelve Months) revenue can be seen as:

A key indicator in financial research is LTM (last twelve months) revenue, which offers insightful information about a company's recent performance and patterns.

LTM revenue provides a snapshot of a company's revenue creation over a standardized timeframe, enabling trend analysis and comparability by aggregating revenue data over the previous twelve consecutive months.

Investors, analysts, and stakeholders rely heavily on LTM data when evaluating a company's financial health, making investment decisions, and conducting valuation research. This is despite certain limitations, such as potential seasonality impacts and the requirement for contextual interpretation.

LTM revenue is a key statistic in assessing a company's overall financial health and revenue performance due to its comparability, timeliness, and usefulness in a range of analytical situations.

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