What are the Financial Quarters? Why do They Matter?

 
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Quarters are the time frames that a company’s financial world revolves. There are four quarters in a calendar year, and there are four quarters in a fiscal year.

Companies issue quarterly earnings reports to investors and heads of the company. They will compare reports from years past, to see if the company is performing well or not. These reports can and will determine what the head of a company will do.

The earnings of different industries fluctuate at different times of the year. This is the reason why the fiscal calendar was created to begin with. Every company has to report its quarterly earnings to the U.S. Securities and Exchange Commission (SEC), four different times throughout the year.

What is Quarter on Quarter?

A quarter on quarter is how the difference between one financial quarter and the previous financial quarter is calculated.

Let’s say that you own a very well-known hair salon:

First-quarter earnings: $3.15 per share

Second-quarter earnings: $4.75 per share

$4.75- $3.15= $1.60

$1.60/ $4.75= 0.336

0.336*100= 33.6%

This means that your company has grown its earnings by 33.6% in just a few months. This is a great sign of your business plan coming to fruition, and your investors would be extremely happy with you.

The quarter on quarter calculation may not be as accurate as some would assume. With any math, there are some exceptions to the rule. This calculation is not exempt. For instance, if you have a seasonal company like a lawn mowing company, your quarter on quarter calculation may show your earnings as going downward. It is possible that your earnings are low, due to the fact that the particular quarter is during your down season. This could also apply, if your seasonal company had a quarter where earnings were extremely high. To make up for the financial earnings shifts your business experiences quarter to quarter, you can adjust the figures seasonally.

When to use a calendar year?

If you want to keep it simple, this is the route to go. The calendar year, as you know, lasts 12 consecutive months. The calendar year is the year in which most people and businesses use for business and tax purposes. If you are the sole proprietor of your own business, it will likely not have its on tax identity. You will typically report the earnings from your business on your individual tax return. In order to switch to the fiscal year, you must first get permission from a representative from the Internal Revenue Service (IRS).

When to use a fiscal year calendar?

Using the fiscal year calendar, is a bit more complicated for some people to understand. The fiscal year also lasts 12 consecutive months. However, it doesn’t end the last day of December like the calendar year. The fiscal year can end on the last day of any other month. This calendar is used by business that have the most of their business during seasonal times. For example, tax preparation businesses and hand car washes. These companies have customer traffic at certain times of the year.

You can choose when you want your company’s fiscal year to start and end. You should not have your fiscal year end close to a high-selling season. At least, wait 2-3 months after that time, so that your reports can be as accurate as possible.

Quarter 1: January 1st– March 31st

Quarter 2: April 1st– June 30th

Quarter 3: July 1st– September 30th

Quarter 4: October 1st– December 31st

The above breakdown, is typically used by companies that operate on a calendar year, and not a fiscal year. Companies that operate on a fiscal year have their own quarterly calendars. Generally, businesses that operate on a fiscal year are highly seasonal.

When Would A Company Pay Their Taxes?

A calendar year company, would pay their taxes on or before April 15th like everyone else. While, a fiscal year company are given a grace period to file their taxes. Fiscal calendar companies have to have their taxes done by the 3rd month following their fiscal year end. Keep in mind that, the IRS requires a year end date on file for each company.

The Takeaway

The use of quarters is not something the everyday citizen would have to worry about. However, if you are a business owner, or plan to be one in the future, the concept of quarters is something you need to understand.

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