A regular 12-month average reduces a year of monthly figures into a single average number. A 12-month rolling average, or moving average, is simply a series of 12-month averages over multiple consecutive 12-month periods. This statistical tool can help you gauge the overall direction of a series of monthly data, because it smooths out the effects of month-to-month changes. You can use a 12-month rolling average to analyze almost any type of monthly numbers, such as revenues, profits, stock prices or account balances.
Step One: Gather the Monthly Data
Gather the monthly data for which you want to calculate a 12-month rolling average. You need at least 13 consecutive months of information, but the more you have, the more useful the rolling average will be. For example, let's assume you want to calculate a 12-month rolling average for the following 14 months of sales:
- January 2017: $50,000
- February 2017: $55,000
- March 2017: $60,000
- April 2017: $65,000
- May 2017: $70,000
- June 2017: $75,000
- July 2017: $72,000
- August 2017: $70,000
- September 2017: $68,000
- October 2017: $71,000
- November 2017: $76,000
- December 2017: $85,000
- January 2018: $73,000
- February 2018: $67,000
Step Two: Add the 12 Oldest Figures
Add the monthly values of the oldest 12-month period. So, in the example, you would add the monthly sales figures from January through December 2017:
$50,000 + $55,000 + $60,000 + $65,000 + $70,000 + $75,000 + $72,000 + $70,000 + $68,000 + $71,000 + $76,000 + $85,000 = $817,000
Step Three: Find the Average
Divide your result by 12 to calculate the average monthly figure for the oldest 12-month period. This represents the first rolling average.
In this example, divide $817,000 by 12: $817,000 / 12 months = $68,083 for the first rolling average
Step Four: Repeat for the Next 12-Month Block
Add the monthly figures for the next consecutive 12-month period. This includes the previous 12-month period except the oldest month. It also includes the newest month immediately following the previous 12-month period.
In the example, the next consecutive 12-month period is February 2017 through January 2018. Add the monthly sales numbers to get $840,000. Divide your result by 12 to calculate the second rolling average. In the example, divide $840,000 by 12:
$840,000 / 12 = $70,000 second rolling average
Step Five: Repeat Again
Add the monthly data for the next consecutive 12-month period, and divide your result by 12 to calculate the third rolling average. Repeat the same calculation for each subsequent 12-month period to calculate the remaining rolling averages.
In the example, add the monthly sales from March 2017 through February 2018 to get $852,000. Divide $852,000 by 12 to get a third moving average of $71,000.
The 12-month rolling averages are $68,083, $70,000 and $71,000, which shows an increasing sales trend over the given period. It's a good idea to plot your monthly figures and 12-month rolling average on a graph to see the trend of your data.