Twelve-Month Moving Average (12MMA)
Updated: Mar 16, 2022
Another great way to track activities that produce sales is to use the Twelve-Month Moving Average (12MMA). If you divide twelve months of gross profit dollars by twelve months of sales dollars, you’ll see your gross margin percentage. Because it includes twelve months of data, what is produced is actually a twelve-month moving average, expressed as a percentage, which has all the same benefits inherent in T12M charts.
An example showing operating expense as a percentage of sales follows.
How to Get Started
12MMA Chart: Operating Expense as a Percentage of Sales for Three Years
Example of charting three years of monthly Operating Expense % Sales on a 12MMA (Twelve Months Moving Average) basis. You’ll get a chart with NO SEASONALITY and every point comparable to every other point. Look at this chart monthly to see things you never saw before about your business! It’s a ROLLING ANNUAL AVERAGE tracked monthly. 12MMA charts will clearly tell you whether you’re good or bad! Ordinary monthly charts usually mislead and show little other than seasonality. 12MMA charts also show historical perspective, a true trendline. Use a regular spreadsheet like Excel. Enter month/year in Column C and monthly Data in Columns A and B as shown below. Then enter two sum functions in the spreadsheet in column D for 12 months of gross profits $ divided by 12 months of sales $. This is a simple 12-month sum formula that moves forward one month (and down one row) at a time. Then chart it on the same page using the spreadsheet’s Chart Function. Better yet, enter YOUR data in Columns A and B below, re-scale the charts, and voila – instant 12MMA!
Now look at this OpExp%Sales chart
If it’s going down, that’s GOOD! If it’s going up, that’s NOT GOOD. Up requires your immediate action by you to make it improve! Use this 12MMA technique to track gross margins (%), debt: equity ratio, receivables DSO, inventory turnover, and other important ratios. You’ll be amazed at your success! Throw away all your other ordinary charts, as they will lie to you more than tell the truth. Only 12MMA and their cousin T12M charts always tell you the truth.