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What Is A Fiscal Year?

Views 3812022.08.22
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Core points

●A fiscal year is usually a cycle of 12 consecutive months

●The cycle of a fiscal year can be the same or different from that of a natural year.

●Factors such as the seasonal characteristics of the business will affect the cycle of setting up Fiscal Year in enterprises.

The fiscal year, also known as the fiscal year, refers to a 12-month accounting period artificially set by enterprises for the purpose of financial and tax reports.

Concept understanding

People who follow corporate financial reports often hear a company's Q2 report for fiscal year 2021, annual report for fiscal year 2022, and so on.

So, does Q2 in fiscal year 2021 necessarily refer to the company's operating data from April 1 to June 30, 2021? Does the annual report for fiscal year 2022 necessarily refer to the company's operating data from January 1 to December 31, 2022?

To understand this problem, we need to understand the similarities and differences between the concepts of natural year, accounting year, tax year and so on.

The above-mentioned concept of year refers to a "12-month" cycle, but the starting time is different.

The natural year, also known as the calendar year, refers to the Gregorian calendar year, each cycle is from January 1 to December 31, and according to the division of every three months as a quarter, from Q1 (January 1 to March 31), the whole year is divided into four Q1-Q4 quarters.

The definition scope of the fiscal year and the fiscal year is basically the same, both refer to a continuous 12-month cycle, set up in order to better statistical reporting of business activities.

The fiscal year can be set as the same as the calendar year from January 1 to December 31 of each year, or with the approval of the regulatory authority, any 12 consecutive months can be set as a cycle, and the name of the year shall prevail in the year in which the fiscal year ends.

For example, Microsoft Corp set it as Fiscal Year from July 1 to June 30 of the following year, and his Q1 report for fiscal year 2021 refers to the operation from July 1 to September 30, 2020.

The tax year is similar to the fiscal year, and the company may, with the approval of the tax regulatory department, choose to follow the fiscal year or the natural year as the tax year cycle.

How to set a fiscal year

For statistical convenience, many companies generally set the fiscal year to be consistent with the calendar year, but if faced with the following situations, some companies will adjust the start date of the fiscal year in order to better reflect the business situation.

First, the business has seasonal characteristics. For example, some companies have a peak sales payback season in April, so if they set the end of the fiscal year in May, they are expected to reflect the earnings data in time for the preparation of the latest results, making the results look better. In addition, some retail companies will be busiest during the Christmas holidays at the end of the year, so they will deliberately bypass the end of the fiscal year to avoid manpower shortages and statistical pressure.

Second, financial cost consideration. Some small and medium-sized companies follow the natural year to set the fiscal year, and hire external accounting firms to help them file tax returns, which makes many accountants busy at the end of the year, raising fees. Therefore, some companies that pay attention to cost control set the fiscal year to other cycles, which can avoid the busy period of accountants and reduce expenses.

The third is the requirements specified by the regulatory body. Some companies are in an industry with special characteristics, or their products or services have special requirements, so there are regulatory dates for tax returns and other links, and at such times, the fiscal years of these companies will also be set according to specific dates.

Summary

In a word, the fiscal year is not only an important cycle for an enterprise to reflect its operation, but also an important window for investors to observe the operation of the company.

After understanding its specific settings, we can avoid asking funny questions such as "Why BABA released the Q2 report for fiscal year 2022 in 2021".

Disclaimer: The above content does not constitute any act of financial product marketing, investment offer, or financial advice. Before making any investment decision, investors should consider the risk factors related to investment products based on their own circumstances and consult professional investment advisors where necessary.

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