November 2007

Issue #2

Even More Uses for the “Trailing Twelve Months” (TTM) Tool

In our last issue, we showed how TTM could be used to track sales growth throughout the year regardless of seasonal or other variations. You can use the same process to track month-by-month trends in gross margin and operating expenses.

If you are concerned about the instability of gross profit, a Gross Margin TTM is the best way to spot it. To calculate the numbers, look at monthly gross profit and sales over the past 3 years. Calculate a rolling annual total of both for each month. Then divide each month’s profit total by the same month's sales total expressed as a percent.

If you suspect overhead is eating at your profits, take the rolling annual total of operating expenses divided by rolling sales total each month. You'll soon see if you need to draw the line on spending.

In each case, chart your numbers and look at the trend line. If it's moving laterally or down, you've got a problem. TTM helps you eliminate guesswork and excuses and start working on solutions to profitably grow your business.

About Navigating Business Rapids

Every other month, Navigating Business Rapids provides financial tools that improve bottom-line results and build business equity.

CFO-Pro can assist you in implementing these tools in your business. We specialize in identifying the causes of negative trends and ways to take corrective action.

Feel free to forward this newsletter to others and send us your questions or suggestions for future issues. Free subscriptions are available on our website, CFO-Pro.com, from the Newsletter page.

Wisdom • Insight • Experience
(630) 778-7646 • (800) 724-4578 • JLafferty@CFO-Pro.com