What is profit calculation by TTM method?
The abbreviation of Trailing Twelve Months means the last twelve months. In this method, shareholders and analysts can evaluate a company based on the EPS of the last twelve months (4 periods of 3 months). According to the requirements of the Securities and Exchange Organization, companies must publish their quarterly financial statements; Therefore, the profit of each share will be available to investors in quarterly periods.
The advantage of the TTM method is that the share price is determined based on its actual price. In fact, share valuation is not done by the company’s predicted profit, and investors can evaluate the company’s performance and obtain better results by using real information.
Therefore, for easier understanding, we can say that EPS of a share is calculated based on the net profit of the last 12 months. If at the end of a company’s financial year we examine its interpretive report, the total net profit (loss) at the end of that year is divided by the total number of shares of the company, EPS of shares; But if we are in the middle of the financial year, according to the latest report provided by the company, EPS can be obtained. For example, now that we are in the second half of 2018, the EPS of a company is equal to the total net profit (loss) of the first 6 months of this year plus the 6 months of last year divided by the total number of company shares.
last word
The advantage of using TTM is that the price of the share is determined based on its actual profit, and the valuation of the share is not done by the investors only by the company’s expected profit; Because the company may not make a correct estimate of the profit in its profit forecast reports, and this causes investors to make mistakes.
Now, by using the TTM method, investors trade using real information in the market and will achieve better results in their transactions; Therefore, the important point in stock valuation using the P/E ratio is to obtain the analytical profit of companies, which investors are able to obtain the ability to estimate the profit of each share in the market by learning fundamental analysis.
Mehdi Koh Soltani (financial services, accounting, financial and tax consultant):
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