A fiscal quarter is a three-month period on a company’s financial calendar used as a basis for periodic financial reports and the paying of dividends. Each quarter represents one-fourth of a year and is typically denoted as Q1 for the first quarter, Q2 for the second, and so forth.
Key Takeaways
- A fiscal quarter is a three-month period used by companies for financial reporting and dividend payments.
- Quarters are typically expressed as Q1, Q2, Q3, and Q4, and can include the year, such as Q1 2022.
- Quarterly reports, known as 10-Q filings with the SEC, are essential for investors and analysts.
- The IRS also requires certain taxpayers to make quarterly estimated tax payments.
- While useful for organizing financial data, quarterly reporting can be burdensome due to additional costs.
Understanding Quarters
Financial reporting and dividend payments are commonly done quarterly. Companies might not align their fiscal quarters with calendar quarters, often closing their fourth quarter after their busiest time of the year. Dividends are usually paid quarterly, although many companies outside the U.S. may not pay them evenly.
Fiscal Quarters vs. Fiscal Years
Companies operate on two main accounting periods: the fiscal quarter and the fiscal year (FY). The fiscal year for most companies runs from January 1 to December 31, although this can vary. Standard calendar quarters are:
- Q1: January, February, March
- Q2: April, May, June
- Q3: July, August, September
- Q4: October, November, December
Some companies, like Costco, have fiscal years that don’t align with the calendar year. Costco’s fiscal year starts in September and ends the following August, making its fourth quarter June, July, and August.
The Seasonality Effect
Companies, investors, and analysts use quarterly data to make comparisons and evaluate trends. Comparing quarterly results to the same quarter of the previous year is common, especially for seasonal businesses. For instance, a retail company might earn half its annual profits in Q4, while a construction company might do most of its business in the first three quarters. Therefore, comparing different quarters without considering seasonality can be misleading.
Uses of Fiscal Quarters
Public companies have more reporting requirements than private companies. Specific decisions, like issuing dividends, revolve around quarters. The IRS also uses quarters for tax purposes, requiring certain taxpayers to make quarterly estimated tax payments using Form 941.
Quarterly Reports
Quarterly earnings reports are crucial for publicly traded companies and their investors. Positive quarterly results can increase a company’s stock value, while poor results can decrease it. All public companies in the U.S. must file quarterly reports (Form 10-Q) with the SEC for the first three quarters, containing unaudited financial statements and operations information for the previous three months.
An annual report (Form 10-K) is also required, providing more detailed information, including an audit statement and additional disclosures. Quarterly reports often include forward-looking guidance, which can significantly impact stock prices.
Quarterly Dividends
In the U.S., most companies paying dividends distribute them quarterly. However, in other countries, it’s common to split the annual dividend into uneven quarterly payments or to pay one annual dividend. Quarterly dividends can create stock price volatility when the ex-date arrives, as investors may rebalance or sell their stock.
Non-Standard Quarters
Some companies and governments use non-standard quarterly reporting systems. For example, the U.S. federal government’s fiscal year starts in October and ends in September. Companies may choose a non-standard fiscal year for business or tax planning purposes. The IRS allows companies to choose a “tax year” that is 52-53 weeks long but doesn’t end in December.
Popular Companies’ Fiscal Years
While many companies follow the calendar year for fiscal reporting, some major corporations use different fiscal calendars. For example:
- Apple Inc.’s fiscal year ends on the last Saturday of September, aligning with its product launch schedule.
- NVIDIA Corporation’s fiscal year ends on the last Sunday of January, accounting for holiday season demand.
- Walmart Inc.’s fiscal year ends on January 31, capturing the entire holiday shopping season in Q4 results.
Criticism of Quarters
The quarterly reporting system is sometimes criticized for pressuring companies to deliver short-term results, potentially neglecting long-term business interests. Additionally, annual summary statements can become outdated quickly. One solution is to use a trailing four quarters or trailing 12 months (TTM) analysis to estimate annual performance based on the most recent four quarters of data.
What Are the 4 Fiscal Quarters?
A fiscal quarter is a three-month period in which a company reports its financial results. Publicly traded companies issue four quarterly reports per year. Fiscal quarters can align with the calendar year or follow a different schedule, depending on the company’s chosen fiscal year-end.
The Bottom Line
Organizing financial planning and reporting into three-month quarterly units helps companies and analysts track progress, set requirements, and make comparisons. Despite some criticisms, this system enhances the ability to organize information and recognize potential problems early. Quarters do not have to follow the traditional calendar and can be adapted to fit a company’s specific needs.
