You have two screeners open on the same afternoon, on the same company, and one says the stock trades at 18 times earnings while the other says 22. Your first thought is that one of them has a data error. Neither does. One has added up the four most recently reported quarters. The other is using the last completed financial year, which ended eight months ago — long enough that two quarters of the new year have been published since. Those two quarters were better than the two they displaced, so the same share price divides into a larger earnings figure on one screen than on the other, and the ratio moves four points without anybody changing an opinion about anything.
Almost every earnings multiple you will ever see quoted rests on a trailing twelve-month figure, and almost nobody looks at how that figure is assembled. It is worth ten minutes, because the assembly has one structural quirk that shows up in every Indian company’s numbers and is invisible unless you know to look for it.
A kirana owner writes his takings in a rough daybook all year and settles up with his distributor once, in March. That is when the damaged stock is finally written off, when the year’s scheme discounts are credited, when the returns are agreed, and when he and his accountant work out what the actual position is. Eleven months look tidy and orderly. March looks peculiar. Nothing happened to the shop in March.
A listed company’s fourth quarter works the same way, for the same reason: it is the quarter that carries the audit. Every true-up, provision and correction for the whole year lands there, and it lands there whether or not anything in the business changed in those three months.
Where the fourth quarter comes from
Quarterly results in India are ordinarily published under the listing regulations with a limited review by the auditors — a lighter procedure than an audit, with fewer checks and no detailed notes. A company may choose to have its quarterly figures audited instead, and a few do, but the common case is a review. The annual figures are audited properly either way. Which leaves an obvious question: what exactly is the fourth quarter, given that the audit covers the year rather than the quarter?
Look at the foot of almost any March-quarter result and you will find a note saying, in the usual boilerplate, that the figures for the quarter are the balancing figures between the audited full-year numbers and the published year-to-date numbers up to the third quarter. That is not an evasion. It is a precise description of an arithmetic operation: audited year minus reviewed nine months. The fourth quarter is a subtraction, not an observation.
Three ways to say "a year", and what each is for
| Window | How it is built | What it is genuinely good for | Where it fails |
|---|---|---|---|
| Last audited financial year | The signed annual accounts | The only figure with a full audit behind it, and the one the notes explain | Goes stale — by January it describes a period that ended nine months ago |
| Trailing twelve months | The four most recent quarters added together | Current, and it always contains exactly one of each quarter, so seasonality cancels out by construction | Contains one balancing fourth quarter, mixes reviewed with audited figures, and silently mixes bases if any quarter was restated |
| An annualised quarter | One quarter multiplied by four | Very little. Occasionally useful for a business with no seasonality after a step change in capacity | Multiplies a festive quarter, a monsoon quarter or a balancing quarter by four and calls the result a year |
The two joints where it comes apart
The first is a stub period: a reporting period that is not twelve months long. Indian companies are ordinarily required to close their books on 31 March, so this is now uncommon, but it still happens — a company aligning its year end after a group reorganisation, or one permitted a different year end because of an overseas parent or subsidiary. When it happens you get a nine-month or a fifteen-month "year", and every year-on-year percentage across that boundary is comparing unequal lengths of time. The tell is the heading on the statement itself, which will say "for the period ended" rather than "for the year ended", and will give the dates.
The second is the share count. Earnings per share is calculated on a weighted average share count — shares outstanding weighted by how long in the period they were outstanding. If a company issued shares in the middle of the year, the four quarterly EPS figures will not add up to the annual EPS, because each quarter used a different denominator and none of them used the annual weighted average. This is not an error in anybody’s arithmetic; it is what weighting does.
- Takes 18 times from one screen and 22 from another and assumes one is broken
- Annualises the best quarter of the year when building a forward estimate
- Adds four published EPS figures to get a trailing EPS
- Reads a weak March quarter as a business turning down
- Compares a fifteen-month period with a twelve-month one and reports the growth
- Checks which twelve months each window covers before deciding anything is wrong
- Uses a trailing twelve-month figure precisely because it carries one of each quarter
- Adds four quarters of profit and divides once, by a share count they have chosen deliberately
- Reads the March-quarter note, finds the balancing-figure wording, and looks for the year-end adjustment behind it
- Notices the heading says "period ended", and works out the monthly run rate before comparing anything
A company published ₹300 crore of profit after tax over nine months, with the third quarter alone contributing ₹110 crore. The audited full year comes in at ₹355 crore. An analyst had valued the company by multiplying the third quarter by four. By how much, and in which direction, was the analyst’s earnings figure wrong — and what caused the gap?
Kirana wale bhaiya saal bhar rough copy mein likhte hain aur distributor se poora hisaab March mein karte hain — tooti-futi maal, scheme ka discount, return, sab wahin nipatta hai. Gyarah mahine seedhe, barhwa ajeeb. Company ka chautha quarter bhi ghatav hai, naap nahi: audited saal ₹4,000 crore minus nau mahine ₹2,760 crore = ₹1,240 crore, yaani 31%, jabki baaki teen ka average 23%. Isliye Q3 ke ₹110 crore ko chaar se guna karke ₹440 crore maan lena — asli saal ₹355 crore tha, 24% ka jhoot.
- A trailing twelve-month figure is the last four quarters added up; the last audited year is a different window, and both can be quoted as "the P/E".
- The March quarter is normally a balancing figure — audited year minus reviewed nine months — so it carries the whole year’s corrections.
- Trailing twelve months removes seasonality by construction, because the window always holds one of each quarter.
- Annualising a single quarter multiplies whatever was peculiar about it by four.
- Build trailing EPS from four quarters of profit divided once, never by adding four published EPS figures, because the weighted share count differs in each.
Mark it done to track your progress through the curriculum.
Common questions
Short, direct answers to what people ask about this topic.
- trailing twelve months meaning in stock market
- Trailing twelve months, or TTM, is the sum of the four most recently reported quarters rather than the last completed financial year. It keeps the figure current, and because it always contains exactly one of each quarter, seasonality cancels out by construction. Its weaknesses are that it mixes limited-reviewed quarters with audited ones and always contains one fourth quarter that is a balancing figure.
- why do two screeners show a different PE for the same stock
- Because they are adding up different twelve months. One is summing the four most recent quarters, the other is using the last completed financial year — which, by January, describes a period that ended nine months ago and excludes the two quarters published since. The same share price divided by two different earnings figures gives two different multiples, and neither is a data error.
- the figures for the March quarter of an Indian listed company are usually
- Balancing figures — the difference between the audited full-year numbers and the published year-to-date numbers up to the third quarter. Most March-quarter results carry a note at the foot saying exactly that. Because the fourth quarter is a subtraction rather than a separate measurement, every audit adjustment belonging to the earlier quarters lands in it, which makes it systematically lumpier for reasons that have nothing to do with demand.
- what is a limited review of quarterly results
- A limited review is the lighter assurance procedure auditors apply to quarterly results under the listing regulations — fewer checks than a full audit and no detailed notes. A company may choose to have its quarterly figures audited instead and a few do, but a review is the common case. The annual figures are properly audited either way.
- can I multiply one quarter’s profit by four to get the annual figure
- Annualising a quarter multiplies whatever was peculiar about those three months by four and calls the result a year. A festive quarter, a monsoon quarter or a March quarter carrying the whole year’s true-ups all get treated as though they were typical. A trailing twelve-month figure contains one of each quarter, so it does not have that particular flaw — its own quirk is the balancing fourth quarter inside it.