What Does TTM Revenue Mean?
TTM revenue refers to a company's revenue over the trailing twelve months (TTM) of operations. This financial measure is sometimes overlooked by buyers who are focused more on a company's profitability and ability to generate EBITDA. However, it can be useful to determine if a company has seen top line growth and where the revenue growth is coming from. The trailing twelve months should be reviewed particularly if there has been a catalyst during the period such as an acquisition or introduction of a new product.
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Divestopedia Explains TTM Revenue
TTM revenue will not provide information on a company's ability to turn a profit. If the company has delivered TTM revenue of $100 million but has also delivered $100 million in costs for a net loss, then it is likely to face a valuation discount. This is why buyers focus more on TTM EBITDA when assessing the reasonability of a valuation. The company's profitability is the overriding consideration.
TTM revenue is more common in the valuation of professional service firms such as accounting or legal practices where revenue accrues by the hour and is tied to the individual professionals. This is because the cost structure can vary considerably and revenue is tied to the professional's relationships with clients. If the professionals leave and take the clients with them, revenue disappears completely, making the valuation on TTM revenue more relevant.