Fiscal year

Definition: The 12-month period a company has chosen to be the year over which it will report its financial performance.

Example: Apple has chosen a fiscal year that begins on October 1 of each year and ends on September 30 of the following year. Therefore, the end of its fiscal year 2016 occurred on September 30, 2016. It effectively shifted its reporting year forward by one quarter.

Investeach explains: While it would make life much simpler if all companies finished their years on December 31 like the rest of us, there are reasons why a different fiscal year is a better choice. Consider a large retailer such as Macy’s. Around the holidays, it will have a high level of sales as shoppers buy gifts for friends and family. But, you know how it is to buy for someone who already has everything (or whose taste is just too picky)! A significant amount of those purchases may be returned to the store for a refund. A lot of the returns may happen in the new year. You would probably agree that shouldn’t begin each year with a slew of returns on sales that happened in the prior year. A simple solution to this problem is for Macys to end its fiscal year not on December 31, but on January 31. This allows customers to make their return during the month of January. Macy’s does indeed end its fiscal year at the end of January.

Finally, a quick way to determine a company’s fiscal year is to bring up a stock quote for the company and to choose to view its annual Income Statement. The heading for the statement will usually show the last business day of fiscal year over which its income is being reported.

Riddle me this:

1. How many consecutive months is a fiscal year?
2. Why might companies choose a fiscal year that is different than a calendar year?
3. How can we quickly determine a company’s fiscal year?