What Does Trailing Revenue Mean?

by Brian Bass; Updated September 26, 2017
Drugstore

Revenue represents an important metric that can indicate the direction in which a business is heading. The more revenue a company can generate, the more profitable the business can potentially become, provided that expenses remain under control. Trailing revenue shows the company's most recent performance in terms of sales.

Trailing 12 Months

The term "trailing" refers to the most recently completed business reporting period. The term also implies that the business calculates this value on a rolling basis. Trailing 12 months (TTM) describes the time frame of the previous 12 months and ends on the final day of the last month the business measures earnings or other financial indicators for the calendar year. TTM can help a business measure its overall financial health.

TTM Revenue

Revenue is income that a company generates from its business activities, generally the sale of goods and services to customers. A business can also receive revenue from interest, dividends or royalties. TTM revenue is the sum of income generated by a business over a consecutive 12-month period. By analyzing such reports as the income statement, the business can calculate the revenues from the past 12-month period, immediately prior to the date of the report. The trailing revenue amount will also change each month, as the business adds the latest month to the calculation and drops the most distant month.

Benefits

TTM revenue offers an accurate picture of a company's sales performance. As sales grow within the organization, the TTM revenue figure will indicate the increase. If the figure drops, this may indicate a problem or difficulty that the business currently faces. It is also used as an indicator for potential investors who need to determine if customers will purchase products or services from a company at a high-enough price to generate profits.

Limitations

The revenue figure alone is not sufficient to determine the health of any business. Trailing revenue does not take into account any other factors except sales. Additionally, trailing revenue can actually mask problems within the organization, showing that the company has performed well and has a growing customer base when this is not an accurate representation. The trailing revenue is therefore not always a good predictive metric. Other factors that a business should consider in combination with trailing revenue include new customer growth, customer satisfaction, cost of customer acquisition and new product innovation.

References

About the Author

Brian Bass has written about accountancy-related topics and accounting trends for "Account Today." He works as a senior auditor specializing in manufacturing and financial services companies for one of the Big 5 accounting firms. Bass hold a master's degree in accounting from the University of Utah.

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