Do TTM Or Normalized Ratios Give You Higher Returns? – Data Driven

Do trailing 12 months (TTM) or average ratios - also called normalized ratios - give you higher returns?

This is what I wanted to find out by looking at all the research I could find.

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How Magical Is The Magic Formula?

What we found

In our book Quantitative Value Investing in Europe: What Works for Achieving Alpha we tested 168 investment strategies in Europe over the 12 year period from June 1999 to June 2011 we also tested trailing 12 months and normalized ratios (5 year average) – the results surprised us.

The normalized ratios we tested were:

• Earnings Yield 5 year average
• Free cash flow yield 5 year average
• Return on Invested Capital (ROIC) 5 year average

Earnings Yield...

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