Quarter - Q1, Q2, Q3, Q4:
A quarter is a three-month period on a company's financial calendar that acts as a basis for periodic financial reports and the paying of dividends. A quarter refers to one-fourth of a year and is typically expressed as "Q1” for the first quarter, “Q2” for the second quarter, and so forth.
Most financial reporting and dividend payments are done on a quarterly basis. Not all companies will have fiscal quarters that correspond to calendar quarters and it is common for a company to close their fourth quarter after their busiest time of year. Dividends are also often paid on a quarterly basis although companies outside the U.S. may do so very unevenly.
The standard calendar quarters that make up the year are: January, February, and March (Q1); April, May, and June (Q2); July, August, and September (Q3); and October, November, and December (Q4). A quarter is often shown with its relevant year, as in Q1 2018 or Q1/18 which represents the first quarter of the year 2018.
The Importance of Fiscal Quarters
Companies have two main accounting or financial reporting periods: the fiscal quarter and the fiscal year (FY). The fiscal year for most companies runs from Jan. 1 to Dec. 31, with fiscal quarters that begin on Jan. 1, Mar. 1, July 1 and Oct. 1.
Some companies have fiscal years that follow different dates. Costco Wholesale Corporation's fiscal year begins in September and ends in the following August. For 2014, Costco's four quarters began on Sept. 2, 2013, Nov. 29, 2013, Feb. 17, 2014 and May 12, 2014.
Companies, investors, and analysts use data from different quarters to make comparisons and evaluate trends. For example, it is common for a company’s quarterly report to be compared to the same quarter the previous year. Many companies are seasonal which would make a comparison over sequential quarters misleading. A retail company could earn half their annual profits in the fourth quarter while a construction company does most of its business in the first three quarters. In this situation, comparing the first quarter results for a department store to their performance during the fourth quarter would indicate an alarming drop in sales.
Evaluating a seasonal company during their slow quarters can be enlightening. It is reasonable to assume that if sales and profits are growing in the off-quarters, when compared to the same quarters in prior years, the intrinsic strength of the company is also improving. For example, auto dealers typically have a slow first quarter and rarely conduct incentive sales programs in February and March. Therefore, if an auto dealer were seeing a significant improvement in sales in the first quarter, this year compared to last, it may indicate the potential for surprisingly strong sales in the second and third quarter as well.
A quarter is a three-month period on a company's financial calendar that acts as a basis for periodic financial reports and the paying of dividends.
A quarter refers to one-fourth of a year and is typically expressed as "Q1” for the first quarter, “Q2” for the second quarter, and so forth.
Quarterly reports are a crucial piece of information for investors and analysts.
Quarterly reports are important for publicly traded companies and their investors. Each release has the potential to significantly affect the value of a company’s stock. If a company has a good quarter, its stock value may increase. If the company has a poor quarter the value of its stock could drop dramatically.
All public companies in the United States must file quarterly reports, known as 10-Qs, with the U.S. Securities and Exchange Commission (SEC) at the end of their first three fiscal quarters. Each 10-Q includes unaudited financial statements and operations information for the previous three months (quarter). A publicly traded company must also file an annual report, known as a 10-K, which summarizes the first three quarters and reports on the fourth quarter. The annual report will often include more detailed information than the quarterly reports including an audit statement, presentations, and additional disclosures.
The quarterly earnings report often includes forward-looking “guidance” for what management expects from the next few quarters or through the end of the year. These estimates are used by analysts and investors to develop their expectations for performance over the next few quarters. Those estimates and guidances, provided by analysts and management, can have a big impact on a stock every three months. If management issues guidance for the next quarter that is worse than expected, the stock’s price will drop. Similarly, if management issues guidance—or an analyst upgrades their independent estimates—the stock can rise significantly.
Limitations of Quarterly Reports
Some executives of public companies have questioned the importance of the quarterly-reporting system. Warren Buffett, the CEO of Berkshire Hathaway (BRK), and Jamie Dimon, the CEO of JP Morgan Chase (JPM) have both been critics, saying that it puts too much pressure on companies and executives to deliver short-term results to please analysts and investors as opposed to focusing on the long-term interests of the business.