Calculating Last Twelve Months (LTM) financial metrics is a crucial aspect of financial analysis for companies. LTM metrics are used to measure a company's most recent financial state, and are frequently calculated after a company reports earnings or in anticipation of a certain corporate event, such as an acquisition. LTM financial metrics are often used interchangeably with "Trailing Twelve Months" (TTM) metrics.

LTM is an important metric for investors, analysts, and other financial professionals because it provides a clear picture of a company's financial performance over the past year. By using LTM metrics, investors can get a sense of a company's financial health and see how it has performed over time. These metrics can be used to compare a company's performance to its competitors or to the broader market, and can help investors make informed decisions about whether to invest in a particular company. In this article, we will explore how to calculate LTM financial metrics and how they can be used in financial analysis.

Understanding LTM

Definition of LTM

Last Twelve Months (LTM) is a financial metric used to evaluate a company's performance over the most recent 12-month period. LTM is often used interchangeably with Trailing Twelve Months (TTM) and Rolling Twelve Months (RTM). LTM financial metrics are frequently calculated after a company reports earnings or in anticipation of a certain corporate event, such as an acquisition.

Importance of LTM in Financial Analysis

LTM is an important metric in financial analysis because it provides a more accurate picture of a company's financial performance over time. By looking at a company's financial data over the most recent 12-month period, analysts can better understand trends and identify areas of strength or weakness.

LTM is especially useful when comparing companies with different fiscal year-ends. For example, if Company A has a fiscal year-end of December 31st and Company B has a fiscal year-end of June 30th, comparing their annual financial data would not provide an accurate comparison. However, by using LTM financial data, analysts can compare the companies' most recent 12-month periods and get a more accurate picture of their relative performance.

Another benefit of LTM is that it provides a more up-to-date view of a company's financial performance than annual financial data. Annual financial data is only available once a year, whereas LTM financial data can be updated on a quarterly or monthly basis. This allows analysts to track a company's performance more closely and make more informed investment decisions.

In summary, LTM is a valuable financial metric that provides a more accurate and up-to-date view of a company's financial performance. By using LTM financial data, analysts can better understand trends and make more informed investment decisions.

Components of LTM Calculation

When calculating LTM, there are several components to consider. These components include revenue, earnings, operating expenses, interest, and Calculator City taxes.

Revenue

Revenue is the total amount of money a company generates from its sales. To calculate LTM revenue, you need to add up the revenue for the past 12 months. This can be done by taking the revenue for each quarter and adding them together, or by using monthly revenue figures. Once you have the total revenue, divide it by 12 to get the average monthly revenue for the past 12 months.

Earnings

Earnings refer to the profits a company generates after deducting its expenses from its revenue. To calculate LTM earnings, add up the earnings for the past 12 months and divide by 12 to get the average monthly earnings.

Operating Expenses

Operating expenses are the costs a company incurs in order to run its business. These expenses include salaries, rent, utilities, and other costs. To calculate LTM operating expenses, add up the operating expenses for the past 12 months and divide by 12 to get the average monthly operating expenses.

Interest

Interest refers to the amount of money a company pays on its debt. To calculate LTM interest, add up the interest payments for the past 12 months and divide by 12 to get the average monthly interest payments.

Taxes

Taxes refer to the amount of money a company pays in taxes. To calculate LTM taxes, add up the taxes paid for the past 12 months and divide by 12 to get the average monthly taxes paid.

By considering these components, you can calculate LTM metrics such as LTM revenue, LTM earnings, and LTM operating expenses. These metrics can be useful in evaluating a company's performance over the past 12 months.

Calculating LTM Step-by-Step

Calculating LTM (Last Twelve Months) financial metrics involves gathering financial statements, adjusting for seasonality, and annualizing partial periods.

Gathering Financial Statements

The first step in calculating LTM is to gather the latest annual financial data, typically from the latest annual filing such as the 10-K filing in the US. This data includes revenue, net income, EBITDA, and other financial metrics.

Next, gather the latest year-to-date (YTD) financial data, which is typically available in the most recent quarterly or interim financial statements. This data includes revenue, net income, EBITDA, and other financial metrics for the current year up to the current month or quarter.

Adjusting for Seasonality

Seasonality can affect a company's financial metrics, particularly for companies with significant seasonal fluctuations. To adjust for seasonality, calculate the average of the same period for the previous year and subtract it from the current YTD period.

For example, if the current YTD period is Q2 2024, calculate the average of Q2 2023 and subtract it from Q2 2024. This will give you the seasonally adjusted YTD financial data.

Annualizing Partial Periods

If the current YTD period does not cover a full 12 months, annualize the partial periods to calculate the LTM financial metrics.

To annualize partial periods, add the current YTD financial data to the latest annual financial data, then subtract the YTD financial data from the previous year. This will give you the financial data for the last 12 months, or LTM.

Overall, calculating LTM financial metrics involves gathering financial statements, adjusting for seasonality, and annualizing partial periods. These steps can help provide a more accurate picture of a company's financial performance over the past 12 months.

Adjustments to LTM Calculations

Non-Recurring Items

When calculating LTM metrics, it is important to adjust for non-recurring or one-time items that may skew the results. These items can include things like restructuring charges, gains or losses from asset sales, or legal settlements.

To adjust for non-recurring items, simply subtract the total amount of these items from the LTM financial data. This will give a more accurate picture of the company's ongoing performance.

Pro Forma Adjustments

Pro forma adjustments are made to LTM financial data to account for changes that have occurred during the period being measured. These changes could include mergers, acquisitions, divestitures, or other significant events that impact the company's financials.

To make pro forma adjustments, simply add or subtract the financial impact of these events from the LTM financial data. This will give a more accurate picture of the company's ongoing performance, taking into account the impact of these significant events.

It is important to note that pro forma adjustments should only be made if the event being measured occurred during the LTM period. If the event occurred outside of the LTM period, it should not be included in the pro forma adjustments.

Overall, adjusting for non-recurring items and making pro forma adjustments can help provide a more accurate picture of a company's ongoing performance when calculating LTM metrics.

Using LTM in Valuation

When it comes to valuation, LTM is a powerful tool that can be used in various ways. In this section, we will explore two popular methods of using LTM in valuation: Comparative Company Analysis (CCA) and Discounted Cash Flow (DCF) Analysis.

Comparative Company Analysis

CCA is a valuation method that compares the financial metrics of a company to those of its peers. LTM metrics are frequently used in CCA to measure a company's most recent financial state. Analysts can use LTM metrics such as revenue, EBITDA, and net income to compare a company's performance to its competitors over the past 12 months.

By comparing a company's LTM metrics to those of its peers, analysts can gain insights into the company's relative performance and identify areas where the company may be lagging behind or outperforming its peers. This information can be used to inform investment decisions and to identify potential acquisition targets.

Discounted Cash Flow Analysis

DCF analysis is a valuation method that estimates the present value of a company's future cash flows. LTM metrics can be used in DCF analysis to help forecast a company's future cash flows. For example, LTM revenue can be used to estimate future revenue growth rates, while LTM EBITDA can be used to estimate future operating margins.

By using LTM metrics in DCF analysis, analysts can create more accurate forecasts of a company's future cash flows, which can be used to estimate the company's intrinsic value. This information can be used to inform investment decisions and to identify potential acquisition targets.

In conclusion, LTM is a powerful tool that can be used in various ways in valuation. By using LTM metrics in CCA and DCF analysis, analysts can gain valuable insights into a company's performance and estimate its intrinsic value with greater accuracy.

Limitations of LTM Analysis

While LTM analysis can provide valuable insights into a company's financial performance, it is important to recognize its limitations.

Firstly, LTM data is backward-looking and may not accurately reflect a company's current financial state or future prospects. For example, if a company has recently undergone a significant change in strategy or management, its LTM financial metrics may not be indicative of its future performance.

Secondly, LTM analysis may not account for seasonality or cyclical trends in a company's financial performance. For example, a retailer may experience higher revenues during the holiday season, which would not be reflected in its LTM revenue metric.

Thirdly, LTM analysis may not be comparable across different companies or industries. For example, a software company may have a higher proportion of upfront costs associated with developing its product, resulting in lower profitability in the short term. Comparing its LTM profitability metric to that of a service-based company may not be meaningful.

Lastly, LTM analysis may not capture non-recurring events or one-time charges that may significantly impact a company's financial performance. For example, a company may have incurred a large legal settlement or write-down that would not be reflected in its LTM financial metrics.

Overall, while LTM analysis can be a useful tool for evaluating a company's financial performance, it should be used in conjunction with other financial metrics and qualitative factors to gain a more comprehensive understanding of a company's financial health.

Frequently Asked Questions

What steps are involved in calculating LTM revenue?

To calculate LTM revenue, one needs to follow a simple three-step process. First, find the latest annual financial data by pulling the most recent annual data from the latest annual filing, typically the 10-K filing in the US. Next, add the latest year-to-date financial data. Finally, subtract the financial data from the same period in the previous year.

How do you determine LTM EBITDA from financial statements?

To determine LTM EBITDA from financial statements, one needs to add up the EBITDA for the most recent 12 months and divide it by 12 to get a monthly average. EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization.

Can you explain the process of calculating LTM Gross Margin?

To calculate LTM Gross Margin, one needs to subtract the cost of goods sold from the revenue for the most recent 12 months and divide it by the revenue for the same period. Gross Margin is a measure of a company's profitability and is calculated by subtracting the cost of goods sold from the revenue.

What distinguishes LTM from TTM in financial analysis?

LTM stands for Last Twelve Months, while TTM stands for Trailing Twelve Months. The difference between the two is that LTM is calculated based on the most recent 12 months of financial data, while TTM is calculated based on the immediately preceding 12-month time period.

In what ways is the LTM ratio significant for financial assessment?

The LTM ratio is significant for financial assessment because it provides a more accurate picture of a company's financial health than a single period's financial data. It is especially useful in evaluating a company's performance during the immediately preceding 12-month time period.

What methods are used for performing LTM calculations in Excel?

There are several methods for performing LTM calculations in Excel, including using the SUMIF function, the OFFSET function, and the INDEX function. These functions can be used to calculate LTM revenue, LTM EBITDA, LTM Gross Margin, and other LTM metrics.