Financial Years, Fiscal Quarters & Earnings Reports: What do they mean?

Financial Year

A financial year is a 12-month period used by businesses and other organisations to calculate their annual financial statements and tax obligations. While the calendar year runs from January 1st to December 31st, a financial year can start and end on any date, depending on the organisation's preference or legal requirements. For example, some companies may align their financial year with the calendar year for simplicity, while others may choose to start their financial year on April 1st and end it on March 31st of the following year.

The choice of financial year can have implications for financial reporting, tax planning, and budgeting. It allows businesses to track their performance over a consistent time frame and compare results from one period to another. Additionally, governments may use the financial year for tax collection purposes, with tax laws and regulations often based on this cycle.

At XTB we prioritise transparency by regularly disclosing our earnings and cash reserves on a quarterly basis. You can find XTBs reports here. 

Fiscal Quarters

Within a financial year, the period is often divided into smaller segments known as fiscal quarters. Each fiscal quarter consists of three consecutive months and serves as a way to provide more frequent updates on financial performance and progress towards annual goals. The four fiscal quarters are typically denoted as Q1 (January to March), Q2 (April to June), Q3 (July to September), and Q4 (October to December).

By breaking down the financial year into quarters, businesses can better monitor their performance throughout the year, identify trends, and make timely adjustments to their strategies. It also enables investors and analysts to assess a company's performance on a more granular level and make informed decisions about buying or selling securities.

Why are they Important?

The concept of financial years and fiscal quarters is essential for several reasons:

Financial Reporting

Businesses use financial years and fiscal quarters to prepare and present their financial statements, including income statements, balance sheets, and cash flow statements. These reports provide stakeholders with insights into the company's financial health and performance over specific periods.

Budgeting and Planning

Organisations rely on the financial year to set annual budgets, allocate resources, and plan for future initiatives. Fiscal quarters allow for more frequent assessments of budgetary performance and adjustments to strategic plans as needed.

Taxation

Tax authorities use the financial year as the basis for collecting taxes from businesses and individuals. Understanding the financial year's duration is essential for complying with tax regulations and meeting filing deadlines.

Investor Relations

Investors and analysts closely monitor companies' financial performance, often focusing on quarterly earnings reports to gauge profitability and growth prospects. By providing regular updates through fiscal quarters, companies can maintain transparency and trust with investors.

Earnings Reports

What is an earnings report?

An earnings report is a financial document released by a publicly traded company that details its financial performance for a specific period, usually a quarter or a year. It is essentially a report card that shows how much money the company made, how much it spent, and how much profit it was left with. Investors use earnings reports to assess the financial health of a company and to make decisions about whether or not to invest in its stock.

Here are some of the key things that you will find in an earnings report:

• Revenue: This is the total amount of money that the company brought in from selling its products or services.
• Expenses: This is the total amount of money that the company spent on things like salaries, rent, and materials.
• Net income: This is the amount of money that the company was left with after subtracting its expenses from its revenue. This is also known as the company's profit.
• Earnings per share (EPS): This is a measure of how much profit the company made per share of its common stock. It is calculated by dividing the net income by the number of shares outstanding.

Companies are required to release their earnings reports to the public, and they are also filed with the Securities and Exchange Commission (SEC).

While quarters have designated months, the exact date when a company releases its earnings report within that quarter is not fixed. They have some flexibility and can choose any date they like, as long as it's within 45 days after the quarter ends.

Many companies traditionally choose to release their earnings early to mid-month, particularly in the weeks following the end of the relevant quarter. However, some may opt for later dates within the allowed timeframe.

You can follow earnings season trends.  While not official "seasons," periods of concentrated earnings releases occur roughly early to mid-January, April, July, and October. These periods attract more attention and resources, making information easier to find.

For example, if a company operates on a calendar year basis and its fiscal quarters align with the standard calendar quarters, they would typically release their earnings reports for the first quarter (Q1) in April, the second quarter (Q2) in July, the third quarter (Q3) in October, and the fourth quarter (Q4) in January of the following year.

The release of earnings reports is often accompanied by an earnings call or conference where company executives discuss the financial results, provide insights into the company's performance, and answer questions from analysts and investors. These reports and calls play a crucial role in informing investors about the company's financial health, growth prospects, and future outlook, influencing stock prices and investor sentiment.

These reports can significantly impact a company's stock price and overall market sentiment.

Tesla is a great example. Based on the reception of its latest earnings report, the market is still struggling to find a reason to buy the EV maker and there are still some big issues with the company, which is driving the share price lower. Firstly, the  company reported earnings and revenue that missed expectations for Q4 2023. Secondly, its forward guidance included in this earnings report spooked the market. Tesla said that they would deliver fewer vehicles next year, as they concentrate on building their new platform. Shockingly, the earnings report stated that Tesla could see the growth rate in revenue and deployment in its energy storage business outpace the automotive business. 

They say that prices don’t lie. If you believe that statement, then the market has seriously fallen out of love with Tesla, the EV maker with Elon Musk at the helm. The stock price is lower by more than 26% since the start of the year, and it has lost more than $200bn from its market capitalisation. The stock price is at its lowest level since May 2022.  Adding to the spate of bad news, the share price fell more than 13% in the days after its Q4 earnings release, and this is the stock’s longest losing streak since 2016. 

While diversification is a good thing, autos are what Tesla are known for, and they are the bulk of their business. Being told that the auto business would have disappointing sales growth this year, without giving any guidance on just how disappointing may not help its share price to recover after its weak start to the year. 

Rather than focus on the bad news, Tesla positioned these results as a growth story, and it may just pay off.

Final Thoughts

In conclusion, financial years , fiscal quarters and earnings reports are fundamental concepts in the world of finance, providing structure and organisation to accounting, reporting, and planning activities. By defining a consistent period for financial analysis and breaking it down into smaller segments, businesses can effectively manage their operations, meet regulatory requirements, and communicate their performance to stakeholders. Whether it's preparing annual financial statements, setting budgets, or analysing quarterly earnings, the understanding of financial years and fiscal quarters is essential for navigating the complexities of the modern financial landscape.