Trailing earnings

A company's earnings can be measured looking in three different directions in time. Historical earnings are last year's, already reported and closed. Forward earnings are a forecast of what is still to come.

Trailing earnings sit in between. They add up the actual earnings from the most recent period right up to today, and they roll forward every time a new period's results come in.

The workbook gives two common variants. Trailing Twelve Months (TTM) means the immediate previous 12 months ending in the current month. Trailing 4 Quarters means the immediate previous 4 quarters ending in the current quarter. Both update on a rolling basis, so the number an analyst uses today is not the same twelve months it would have used a quarter ago.

The workbook flags exactly why this matters: trailing earnings are most useful when valuing a company at any point in time, especially between the financial year-end and the next quarterly result. Waiting for the annual report would mean working with earnings that are, in the worst case, nearly a year stale.

A company's last full financial year, FY2024, ending 31 March 2024, reported net profit of Rs 240 crore. It is now December 2024. The company has since reported quarterly profits of Rs 68 crore, Rs 72 crore and Rs 75 crore for the quarters ended June, September and December 2024, replacing the corresponding quarters of the prior year, Rs 58 crore, Rs 60 crore and Rs 64 crore, in the trailing count.

Trailing 12-month earnings = 240 − (58+60+64) + (68+72+75)
                            = 240 − 182 + 215 = Rs 273 crore

An analyst valuing the stock in December 2024 uses this Rs 273 crore trailing figure, not the Rs 240 crore from the last annual report, because it reflects nine more recent months of performance.

Chapter 3, section 3.1.8 (Earnings – Historical, Trailing and Forward), introduces this alongside EBIT and EBITDA in the earnings-definitions section leading into EPS. Expect a question distinguishing trailing from historical and forward earnings, or one testing what TTM stands for.

• Trailing is not the same as historical. Historical earnings are a fixed prior year's number; trailing earnings roll forward every quarter and are not tied to the financial year-end.
• TTM means the last 12 months ending in the current month, not the last completed financial year, even if the two happen to be close.
• Trailing earnings are still actual, reported numbers. Forward earnings are built on projection; do not mix the two up.