Direct comparison of valuation ratios of companies with different year ends can be misleading.

Consider two companies, one with a March year end, the other with a December year end. In February they both have a historical PE of 15*×*. The company with the March year end is cheaper because it reached the level of earnings on which the 15*×* PE is based sooner.

If quarterly EPS numbers (actual or estimates) are available for both companies, then it is relatively simple to calculate a directly comparable PE. This is done simply by using the sum of the EPS numbers for the last four quarters as the EPS number. This is the trailing twelve months (TTM) EPS.

If a company only discloses half yearly EPS the sum of the last two half years would have to be used. This is not quite as good as it often means that there can still be a difference of one quarter between the periods being compared. It is still an improvement on using the financial years.

The same method can be applied to EPS forecasts (using estimates for the next four quarters). It can also be applied to other valuation ratios.

In many cases (e.g., low growth companies, year ends in successive quarters, large differences in PE) it is not be worth bothering to calculate TTM numbers as the adjustment makes an insignificant difference. This is especially true for investors who are looking for large gains - and therefore comparatively very cheap ratings.