Entrepreneurship can be thrilling, but let's be honest…putting together your startup's financial statements isn't always the easiest part of the journey. Most startups take multiple seed rounds and five-plus years to go public after securing their first venture capital investment.
Having a firm understanding of startup finances is vital, especially in the early stages, when you're trying to secure funding and chart your company's destiny for the upcoming years. Irrespective of whether you're a pro or you hate crunching numbers, making time for financial data analytics is a must to make informed business decisions and secure that crucial early-stage funding that can propel your company in the right direction.
Understanding your company's financial heartbeat goes beyond reviewing quarterly figures. You need something more holistic than just the income statement from the previous quarter. And that's where last-12-months (LTM) metrics come in. LTM earnings before interest, taxes, depreciation, and amortization (EBITDA), for example, offer a broader perspective by analyzing your company's fiscal performance over a yearlong period.
In this post, we'll explore LTM revenue, its definition, and its calculation method and discuss its advantages for financial analytics. So buckle up, and let's dive into the world of LTM revenue analysis!
What Is Last-12-Months Revenue?
As a business owner, it's essential to clearly understand how your company has been performing over the past year so that you can make informed decisions for the coming year. But how do you get an accurate representation of your company's financial performance?
Annual revenue from the previous fiscal year may provide a snapshot, but it's limited and doesn't give you the complete picture of your company's current financial health. This is where LTM revenue comes in handy. Also known as trailing-12-months (TTM) or rolling-12-months revenue, this metric provides a more comprehensive view of your company's financial health than just focusing on individual quarterly reports.
LTM revenue represents the total income that your company has generated over the past 12 months. It includes revenue streams or business operations that have changed since the previous fiscal year. With LTM revenue, you get a moving window that provides you with a holistic, up-to-date view of your company's performance over the most recent 12-month period.
This metric is handy in identifying trends and patterns, such as seasonal fluctuations or one-time events, which may not be apparent when you're looking at quarterly reports alone. With a more comprehensive view of your company's performance, you can use it to make informed decisions that help grow your business and achieve long-term success.
Its Benefits For Financial Analysis
Analyzing your company's LTM revenue offers several benefits, such as:
- Access to relevant revenue figures: The LTM revenue calculation incorporates the most recent financial data available, including the latest interim reports. This provides a more current and accurate representation of your company's performance than relying solely on the previous year's annual revenue figures.
- Accounts for seasonal variations: For businesses with seasonal fluctuations in cash flow, the LTM revenue calculation can help smooth out these variations and provide a more holistic view of the company's overall revenue trend. TTM finance calculations capture the complete cycle of seasonal variations by including revenue from all four fiscal quarters.
- Reflects changes in business conditions: If your company has undergone significant changes in its operations, market conditions, capital expenditures, or strategic initiatives, LTM revenue can more accurately reflect the impact of these changes. This makes it a more responsive and relevant metric than annual revenue figures, which may not fully capture recent changes.
- Facilitates comparative analysis: Using LTM revenue allows for more meaningful comparisons between companies, especially those with different fiscal year-end dates. By considering the same 12-month period, you can evaluate and compare your performance with that of your competitors or industry peers.
- Supports forecasting and valuations: LTM revenue can be used as a basis for revenue projections and valuations, providing a more up-to-date starting point for profitability analysis and other financial analysis reports. This is particularly useful if your company has rapidly changing revenue streams or is undergoing significant growth or restructuring.
- Identifies revenue trends: By tracking LTM revenue over multiple periods, you can identify trends in your company's revenue growth or decline, which can aid in assessing the company's overall fiscal health and potential future performance.
How To Calculate It
The LTM calculation involves summing up the financial data from the past 12 months. Here's a step-by-step guide.
Key Steps
1. Gather Financial Data
The first step is to gather all of the necessary financial reports and statements. Think of it as collecting all the fiscal pieces you need to get the complete picture of your company's performance. You'll need the income statements for the most recent full fiscal year and the previous fiscal year, as well as any interim reports, like quarterly or semi-annual reports, that have been released since the end of the last fiscal year.
2. Find The Annual Revenue
Now that you have all of the required financial reports, the next step is to analyze them to find the necessary data. Use the income statement for the most recent full fiscal year and note the total annual revenue.
3. Add The Latest Year-To-Date Revenue
The next step is to capture your most recent performance. Locate the latest interim report (let's say it's the first-quarter report) and find the year-to-date (YTD) revenue figure. Add this number to the annual revenue you found in the previous step.
4. Subtract The Prior Year's YTD Revenue
To avoid double-counting revenue, you need to subtract the YTD revenue from the same period in the previous fiscal year. So if you added the first quarter's revenue from the latest report, you'll need to subtract the corresponding quarter's revenue from the previous year's report.
The Formula For LTM Revenue
Now that you understand the steps, let's put it all together in a simple formula:
LTM Revenue = Annual Revenue From Previous Fiscal Year + Latest YTD Revenue - Prior Year's YTD Revenue
For example, let's say your company had annual revenue of $100 million in the previous fiscal year. The latest interim report shows revenue of $30 million for the first quarter of the current year. The next step is subtracting the first quarter's revenue from the previous year, which was $25 million. So the LTM revenue calculation would be:
LTM Revenue = $100 Million + $30 Million - $25 Million = $105 Million
Leverage Key Measurements For Strategic Financial Decisions
LTM revenue serves as a cornerstone in making well-informed financial decisions, offering valuable insights into your company's growth trajectory, financial resilience, and valuation accuracy.
Monitoring LTM revenue growth over time sheds light on your company's ability to expand its market share and augment profitability, while consistent growth signifies financial fortitude and reliability for investors.
Moreover, LTM revenue analysis provides a more holistic perspective of your company's financial health, ensuring accurate valuation during crucial events like mergers or acquisitions. By calculating LTM revenue, you gain an updated understanding of your company's performance, transcending quarterly limitations. Harnessing LTM revenue empowers informed financial choices aligned with your goals.
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