The inspiration for today’s blog started as a question. I had a call from an operator the other day asking how it could be the third quarter in 2016 when it was only mid-May. He went on to say we had just run this on VendingMarketWatch Today and wasn’t it a typo? I wasn’t sure I understood his question at first but after looking into it, I realized that the operator was thinking about quarters of a fiscal year starting in January, and many companies don’t operate that way. In effect, he was comparing apples to oranges.
A fiscal year varies
In order to give this operator the best possible response to his question, I decided to go in search of a professional definition of “fiscal year.” Investor Words defines fiscal year as a 12-month period, that does not begin in January and end in December. It merely is 12 consecutive months over which a company budgets its spending. Also the fiscal year is referenced by the date in which it ends, not begins. Therefore this is how, if the quarter (defined as a consecutive three month period) ended in 2016, it could be a third quarter, despite it being May.
But why do this? Well, according to my reading, there are various reasons not to use the standard calendar year. Some have to do with wanting a strong fourth quarter. If you have a seasonal business, it makes sense to end your year right after that season ends, even if it’s August instead of December. It keeps the sales from a season and the costs on the same profit and loss statement. Another reason is that people who do the books for companies take holidays in December, making it more difficult to close at that time of year. Not to mention in retail there is an also a huge increase in revenue at that time, which needs time to be processed. It can give an advantage to some companies.
Many companies have a different year
The practice appears to be fairly commonplace. A quick Google search on “fiscal third quarter results in May” revealed quite a few press releases (over 3 million hits with the various word combinations). Notable examples include Apple’s 2016 second quarter which ended in March and the U.S. Government, whose fiscal third quarter ends in June of this year (Their fiscal year starts on July 1).
I’m not sure if the fact that fiscal calendars and quarters are not standard is widely known. Certainly, there is some confusion out there. Hopefully, this quick explanation helps you understand the revenue reports we run about companies operating in the vending, micro market and office coffee service industry a little better. It’s important to evaluate the profits and losses in the proper way in order to see the trends in revenue and guess on the direction of the economy and industry. It’s the best way to compare apples to apples.
