In recent years, the Indian stock market has experienced remarkable growth and fluctuations, which reflect the Indian economy’s ups and downs. Sensex and Nifty are two of the primary statistics in the Indian share market that are commonly used to figure out market movements. However, there is another way that investors analyse the performance of the stock market – it is based on the LTM figures of the companies listed on the stock exchanges.
LTM is helpful for shareholders and market analysts who want to evaluate a company’s current and previous performance. It also comes as a handy calculation to have when one needs to compare the statistics to that of other companies in a similar market.
So, what exactly is LTM, and how can you calculate it to analyse a specific company’s growth potential? We’ll look into it in today’s article. Let’s get started.
What is LTM?
A company’s earnings report or other financial documents sometimes include the word LTM. LTM’s full form is “Last Twelve Months,” which describes the period of the 12 months that came right before.
LTM, or TTM (trailing twelve months), is a performance metric represented as a timeframe to assess a company’s success in the twelve months immediately prior to it. The LTM refers to any 12-month period; because of that, this need not be specifically connected to a fiscal year period.
A 12-month period can be helpful since it shows a company’s most recent performance and is reflective of the company’s present situation, even if it is an extremely brief period for analysing a business’s performance.
LTM financial measures are often estimated for an instance of such an acquisition or for a shareholder looking for insight into the business’s financial performance over the previous 12 months. TTM is used by investors as well as analysts to evaluate a wide range of financial data, including cash flows, income statements, and balance sheet numbers.
Financial ratios may also be estimated using TTM numbers. The price/earnings ratio, or P/E (TTM), is determined by dividing a share’s price at the present time by the trailing 12-month earnings per share (EPS) of that company.
Below is an illustration of Tata Motors’ TTM EPS from September 2022 to September 2023.
LTM revenue is a widely used metric in the finance sector in order to determine the financial state of a business. It estimates or presents the revenue amounts for the previous twelve months. Instead of using the quarterly results and extending them to the entire year, LTM or TTM revenue provides information about how a business performed over the previous year.
A quarter may be excellent or terrible depending on a number of circumstances, including employment issues, the impact of seasonality, sales growth over the holiday season, etc. In order to properly draw conclusions, the impacts are averaged out using LTM statistics.
The result of this calculation never affects a balance sheet since a balance sheet is created at a certain date and time, independent of the events that occur during the year.
EBITDA is reported on a trailing twelve-month basis and serves as a substitute for the company’s operating revenue. During the initial to moderate stage of the development of an organisation, this is one of the most widely implemented valuation metrics. Another name for it is TTM EBITDA.
To put it simply, it attempts to evaluate a company’s performance solely based on how well it operates, independent of the effects of various tax laws, depreciation policies, and capital structures, which are a mix of debt and equity.
How do I calculate LTM revenue?
You can figure out a company’s LTM revenue by taking these steps:
- Get the last annual filing financial data along with quarterly filings
- Add the latest Year-to-Date (YTD) information
- Deduct the previous year’s YTD data that corresponds to the previous step.
Keep in mind that the two adjustments to the income from the previous fiscal year, which are the stub periods in the calculation, should “match” as far as the timing is concerned. The stub period is part of the current year, not over yet, used in LTM calculation.
Here’s an example of LTM revenue calculation:
Assume a business generated ₹750 crore in sales for the 2021 financial year. However, it reported ₹300 crore in quarterly sales for Q1 of 2022.
The next step is to get the matching quarterly revenue, which we’ll consider to be ₹150 crore, or revenue from Q1 of 2021.
- Revenue for fiscal year 2021: ₹750 crore
- Revenue for Q1 2022: ₹300 crore
- Revenue for Q1 2021: ₹150 crore
In this case study, the company’s long-term net revenue is ₹900 crore.
₹750 crore + ₹300 crore – ₹150 crore = ₹900 crore in LTM revenue.
This ₹900 crore in revenue is the total revenue over the previous 12 months.
How do I calculate LTM EBITDA?
One advantage of using EBITDA as an indicator of profitability is that it is easy to determine or calculate. The operating profit of the business, also known as earnings before interest and tax, is the starting point for calculating EBITDA. After that, depreciation and amortisation values are included.
The calculation of EBITDA may be done using two very basic formulas. The second formula is a shortcut, whereas the first is a lengthy, comprehensive formula.
Earnings before interest, tax, depreciation, and amortisation = EBITDA
Operating income + depreciation + amortisation = EBITDA
To calculate LTM EBITDA, you need to simply add the EBITDA for the last four quarters.
Reasons to use LTM figures
- LTM can be helpful in evaluating how a company is performing recently, which reflects its current direction.
- Its data is more up-to-date than that of the annual or fiscal financial statements, avoiding possible misleading evaluations over a short period of time.
- It is helpful for evaluating the relative efficacy of related companies across a sector or industry.
- In the case of an acquisition, LTM statistics offer a more precise valuation of a company.
- It provides a useful calculation for the price-to-earnings ratio.
When it comes to financial measures, the LTM time frame is long enough to give analysts and shareholders information that isn’t unnecessarily biased or impacted by things like seasonality or sudden dips in the market or economy. TTM financial metrics are often used not just for analysing annual performance or current trends but also to evaluate the relative performance of competitors within a market or sector.