1. Financial periods and how to work with them
Hi, and welcome back. In this chapter, we will go into more detail on financial periods and how to work with them. All forecasts are based on specific financial periods, so let's have a look.
2. The financial year
A company works in a specific framework when it comes to reporting its numbers. This is called the financial year. It is important to have this structure in order to be able to compare years and companies. A financial year does not have to be the same as a calendar year, January to December, but can start and end at any month. For example, the financial year of Microsoft runs from the 1st of July to the 30th of June.
3. Months and quarters
A financial year is broken up into months and quarters. Months are pretty explanatory and quarters are chunks of three months at a time. For example, the first quarter of a calendar year is January to March. However, even when companies have a different starting date to their financial year than 1 January, they almost always have their year start and end at one of the calendar quarters, so either 1 April until 31 March, 1 July until 30 June, or 1 October until 30 September.
4. Abbreviations
In a financial statement or forecast, the months are usually represented by numbers, with the number 1 corresponding to January no matter when the financial year starts. They are not dependent on the financial year.
For quarters, the abbreviations Q1, Q2, etc. are used, and these are based on the financial year. Taking the example of Microsoft again, their first quarter would be July until September.
The year can either be abbreviated to two digits or the full four digits, depending on the length of time examined. The year is based on the financial year end, for example, Microsoft has a year-end of June; therefore the 2018 financial year would be from 1 July 2017 until 30 June 2018.
5. Let's practice!
Now let's see some examples.