Using different methods to check in on your company’s financial health gives you a more well-rounded look at what’s going on with your small business. One way to do that is with the Trailing Twelve Months method. This calculation looks at various financial aspects of your business, but instead of checking those numbers for the current calendar or fiscal year, it looks at your numbers over the previous 12 months.
When looking at numbers using TTM, you need to decide where to focus. You might just look at revenue or profits, or maybe you want to compare your revenue to your expenses. Whatever metric you use, this method requires your numbers for the previous 12 consecutive months. For instance, if you calculate TTM on Oct. 1, you look at the numbers from the previous October through your current numbers.
You can use a variety of financial statements to find those numbers, including income statements, balance sheets, and cash flow statements. Pull up those documents to calculate your numbers. If you use an income statement, add up the numbers based on the frequency of those statements. If you do monthly income statements, add up the numbers of the last 12. If you report quarterly, add up the numbers of your small business’s last four quarterly reports.
Why Use TTM?
TTM helps you get a picture of how your company performs without waiting until the end of the calendar or fiscal year. This proves more accurate than using the current year or year-to-date figures, especially earlier in the year when you don’t have many months to calculate. In March, it’s difficult to understand how your company is doing if you only look at current year figures. With this in mind, you can use TTM to show everything from last April through March to get a better idea of your company’s current state.
TTM often proves more reliable than year-to-date numbers when you measure your company’s performance due to improved consistency. This holds true especially if you have a seasonal industry business. If you only look at your activity from January through October for your retail business, you don’t get a sense of holiday sales. If your company does best due to summer activities, you can’t get a good idea of your financial health by only looking at calendar year activity through April.
You can also use TTM to help you understand the fluctuations over the last 12 months when you budget or manage your small business’s cash. Because TTM gives you more information than other reporting methods, it leaves you better equipped to plan for the next year ahead, regardless of the current date. It provides insight into your small business’s performance over the past 12 months, making it easier to predict what the next 12 months might look like. The flexibility of this reporting method gives you a better idea of your operations and helps you make better decisions.
Financial institutions and banks may find your TTM results useful when you apply for a loan. If you apply for a loan in July but use statements from the previous year, they may not accurately show growth in the beginning part of the current year. It’s important to note that TTM should be used only internally, as it isn’t an acceptable method of reporting your financial statements to the public.
Having accurate records at your fingertips makes it easier to use methods such as TTM to understand your business finances. For this reason and more, 5.6 million customers use QuickBooks. Join them today to help your business thrive for free.