Definition: An abbreviation that notes when a financial figure being shown occurred is the most recently completed quarter. Example: Let’s say that past sales for JS Corporation are:
TWO YEARS AGO
Quarter 1: $0.3 million
Quarter 2: $0.5 million
Quarter 3: $0.7 million
Quarter 4: $0.9 million
Quarter 1: $1.0 million
Quarter 2: $1.5 million
Quarter 3: $2.0 million
Quarter 4: $2.5 million
Quarter 1: $3.0 million
Quarter 2: $3.5 million
Quarter 3: $4.0 million
Let’s also say that it is sometime in November. Sales for the most recent quarter were $4.0 million.
Investeach explains: If a company wanted to compute its rate of growth in sales from year to year, it would first compute the sales totals for each of the last two completed years. Sales two years ago totaled .$3m + $.5m + $.7m + $.9m, or $2.4 million. Sales last year totaled $1.0m + $1.5m + $2.0m + $2.5m, or $7 million.
Using the formula (newer sales – older sales) / older sales and then multiplying by 100 gives us the rate of growth in sales from year to year. The answer is (($7m – $2.4m) / $2.4m) * 100, or an amazing 192%! Sales nearly tripled!
Because we are comparing “apples to apples”, we can also calculate the rate of growth between a single quarter to the same quarter a year prior. To ensure that we are getting the most timely and accurate information, let’s compare the sales for the most recently completed quarter (ie, $4.0 million in the 3rd quarter of this year) to that of the third quarter of last year (ie, $2.0 million). With sales doubling, the growth rate is a nice round 100%. This more recent information shows that while the corporation’s sales growth is truly impressive, it is actually slow down!
Financial figures such as assets (eg: cash, inventory and equipment) and liabilities (eg: bills owed) are shown on the Balance Sheet financial statement. Because a Balance Sheet is a snap shot of the dollar amount of each of these at a point in time, it makes sense that if we want to analyze this type of information, we use the most recent quarter’s information.
Finally, when producing a report with the last quarter’s information, one should identify the figure with the abbreviation next to it, such as “SALES (mrq)”.
Riddle me this:
1. What does mrq stand for?
2. Why is using the most recent quarter as a basis for measuring performance better than using the last completed year?
3. Identify a time of the year when the assets and liabilities of a corporation will be the same on the corporation’s Balance Sheet for the last completed year and the most recent quarter. Explain why.