A quarter is basically a period of three months. This term is used widely in finance to check the periodic activity of a company. They are often used as Q1, Q2, Q3, and Q4 in financial statements, analysis, and tax reports.
· Q1 is the first quarter of a year that starts on January 1 and ends on March 31.
· Q2 is the second quarter of the year that starts on April 1 and ends on June 30.
· Q3 is the third quarter of the year that starts on July 1 and ends on September 30.
· Q4 is the fourth quarter of the year that starts on October 1 and ends on December 31.
There are 4 quarters in a year and each quarter is 3 months or approximately 90 days long.
What are Quarters?
Quarters are used in a financial or corporate language widely as they are describing the business profits or other information about a company. The business year ends at the end of the last or fourth quarter Q4. And companies issue a financial statement at the end of the year.
However, companies also issue quarterly statements that help investors see how a company is performing in the short term.
Some companies also pay quarterly dividends. (Dividends are usually paid out yearly)
Financial companies also use the term fiscal quarter. A fiscal quarter is just like a regular quarter, but the only difference is that the fiscal quarter ends after every three months in a fiscal year FY.
Companies have different fiscal years (12-month periods) for recording financial activities. Although the fiscal year of many corporations starts from January 1 and December 31.
The fiscal year of some corporations can begin from any other day of the month, for instance; from September 1, 2022, to August 30, 2023.
The fiscal quarters of the fiscal year (September 1, 2022 – August 30, 2023) will be:
· First fiscal quarter: September 1, 2022, to November 30
· Second fiscal quarter: December 1, 2022, to February 28, 2023
· Third fiscal quarter: March 1, 2023, to May 31, 2023
· Fourth fiscal quarter: June 1, 2023, to August 31, 2023
The fiscal year for most government institutions in the U.S starts on October 1, meaning that the first quarter contains three months October, November, and December.
Why are Quarters Important?
Usually, companies, tax experts, analysts, and investors often come across the term quarters when they are dealing with tax returns, financial statements, etc.
Quarters are important for investors because it helps them evaluate the performance of a company several times during the year. For instance, let’s say that a company that pays out yearly dividends earned a profit of $2 million. The company decides to start paying quarterly dividends but investors are skeptical whether the dividend payments will be steady.
By looking at the company’s quarterly financial statement they might notice that company earned around $1.5 million in the last quarter and $500,000 during the first three quarters. This might mean that company would pay low dividends at the end of the first three quarters.
Therefore, looking at the quarterly reports, investors can find out slow growth periods.
For instance, builders provide building services on credit meaning they get paid after the completion of construction. So, a construction company, although it is working on a big project right now might not get paid until the completion of the project which might also take more than one or two years. Therefore, it is important to use quarterly and annual reports to gauge progress.