Analysts and lending decision committees like to review a broad range of information regarding financial performance to make recommendations and decisions. Financial statements for the fiscal year provide useful data, as do statements from the last year, or the trailing 12 months. Profit margin is one key indicator many companies use. The TTM profit margin, also called the trailing 12-month profit margin, is the profit margin the company achieved over the last year.

Trailing 12 Months

The term "trailing 12 months" refers to the just-completed 12-month period. It ends on the last day of the month preceding the current month. The term is commonly used in analyst or news summaries regarding publicly held companies but is also used in analyzing the financials of small to medium-sized companies. TTM can refer to any financial number or indicator, including revenues, earnings and margins.

Profit Margin

The profit margin tells you how much a company earns out of every dollar it generates in revenue. Given as a percentage, it quickly allows you to determine how profitable your company is. Profit margin is a good tool to use to compare your company's performance to another, especially in the same industry since average profit margins vary by industry. You calculate the profit margin by dividing profit by gross revenues.

TTM Profit Margin

The TTM profit margin is the trailing 12 months of profit over total revenues for a company. The trailing 12 months' profit margin allows owners and investors to observe any recent profit trends. It is most useful when the TTM does not coincide with the fiscal year.

Gross vs. Net Profit

Companies may use TTM gross profit margin or TTM net profit margin to hone in on specific performance areas of interest. For example, if you are interested in how well your company uses resources to produce its products, you would look at the TTM gross profit margin. If you want to analyze the company's overall profit performance, you would use TTM net profit margin.

Example and Importance

Say your company's fiscal year ended December 31. It is now May 9. Calculate the TTM net profit margin using the net income and gross revenues from the period from May 1 to April 30. Compare these to the profit margin for the fiscal year to see whether or not your company's margins are showing improvement. Improving profit margins indicate a higher ability to differentiate your company from its competitors.