Trailing twelve months (TTM) revenue or earnings is the sum of the most recent twelve consecutive months of results, recalculated every time a new month closes, so a buyer prices a deal on the business’s most current performance rather than on a fiscal year that may already be stale by the time an offer is on the table.
A target’s books have to exist at the monthly level for a TTM figure to be built at all. Canadian businesses are required under Income Tax Act s. 230(4)(b) to keep records “until the expiration of six years from the end of the last taxation year to which the records and books of account relate,” and s. 230(4.1) requires electronic records to be kept “in an electronically readable format” — the same interim monthly data a buyer pulls to stitch together a TTM figure between fiscal year-ends.
Buyers reach for TTM instead of the last audited year for the same reason a quality of earnings report exists: a stale fiscal year-end may no longer be “representative of how the business actually performs going forward.” A deal priced eight months into a new fiscal year on a stale year-end figure is pricing the business as it was, not as it is.
A target’s fiscal year ends March 31, and its last audited statements showed EBITDA of $1.6 million. The deal is being priced in November, seven months later. The buyer combines five months of the prior fiscal year’s actuals (November through March) with seven months of the seller’s internal management accounts (April through October) to build a twelve-month trailing figure of $1.85 million — materially higher than the stale year-end number because the business added a large customer in June, a full nine months after the audited statements were struck.
See also: Run-rate revenue · Quality of earnings report · Pro forma financial statements.
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