Why do some companies start their fiscal year in January and others start it in April? Why do some companies determine quarters by the calendar year and others by trends or season? In a nutshell, why do companies report quarterly results at different times of the year?
This is a question that puzzles many people because, unlike individuals, who must file their taxes to the IRS every year by the same annual deadline (April 15), companies have the benefit of deciding when their fiscal year begins and ends.
There are a couple of things to keep in mind:
- Corporations must declare their fiscal year-end (or beginning) when they first form. They can’t change it from year to year.
- Unlike individuals, publicly-traded companies must submit quarterly reports of their financial figures to the SEC.
Key Takeaways
- Unlike people, who must file their taxes on the same date every year, corporations have the luxury of determining when their fiscal years start and end.
- This flexibility enables companies in different sectors, subject to different seasonal trends and challenges, to devise a fiscal year that aligns with the firms’ corporate goals.
- Regardless of when the fiscal year starts, all publicly-traded companies must report quarterly results four times a year, with three statements filed as 10-Qs and one annual report (that includes Q4 data) filed as a 10-K.
Why Companies Vary Fiscal Year-Ends
While there may be a variety of arguments for why companies might choose different fiscal year-ends, the main reason they opt to do it is that some industries fluctuate at different times, with some showing peak earnings during different seasons than others. Thus, by being able to adjust the timing of their earnings reports, companies can minimize the negative seasonal effects that occur within their specific industries.
For example, a company that has to buy inventory during the summer months probably won’t want to report its earnings during this time. This may be because the higher-than-normal inventory purchases will decrease its earnings and create a false image of the company’s financial status for that quarter.
Reporting Results Quarterly
Each company is required to report earnings on a total of four separate occasions throughout the fiscal year. Three quarterly statements will be filed as 10-Qs, and one annual report with Q4 data within it will be filed as a 10-K. The SEC requires companies to file 10-Qs no later than 45 days after the end of a quarter. These 10-Ks must be submitted no later than 90 days following a company’s fiscal year-end.
Why Do Some Companies Postpone Earnings?
Some companies choose to postpone their earnings announcements for a variety of reasons. In some cases, the audits may not be completed on time to complete the report. Other companies may have inexperienced staff who take longer to complete the task than anticipated. However, there are incidences where accidents, such as computer crashes, technical errors, loss, damage, or theft could compromise a company’s financial data, making it impossible to report earnings on time.
When a company postpones announcing earnings, it can sometimes be a signal of a potentially negative earnings surprise, which could impact the share price. Delaying a company’s earnings announcement could spur some investors to sell the stock, which could further impact share prices.