Why Do Different Companies Have Different Fiscal Years?

Third-quarter earnings season is underway. But, as many astute traders are sure to have noted, certain companies tend to report quarterly results for different periods (say, Q2 or Q4).

The majority of public companies end their financial year on December 31, which is also the end of the calendar year. GAAP requires companies to report in a way that matches up with their operations. But, some companies have different fiscal year endings. Fiscal year is nothing but the 12-month accounting period of a company.

For context, Apple Inc. AAPL recently reported its financial numbers for its fourth quarter. Its fiscal year ends in September. Microsoft Corporation MSFT, with its FY ending in June, reported its performance stats for first quarter most recently. And Adobe Systems Incorporated ADBE’ fiscal year ends in November and will report its fourth-quarter results on December 15.

Generally, companies prefer their fourth quarter to be the strongest quarter so they can end the year on a high note, as it also acts as a positive sentiment for stock prices.

But, companies can choose their fiscal year according to their business needs, but they should inform the same to regulators at the time of incorporation.

However, if they opt for a fiscal year, they need to stick to that reporting period. In other words, they cannot change their fiscal year every year.

The key reason for companies choosing different fiscal year-ends is the seasonal fluctuations of the businesses they operate and the availability of supplies. By choosing their fiscal year, they can limit the negative seasonal impact that happen within their specific industries.

For instance, most retailers opt to end their fiscal year in January, as they get a major portion of revenue in the month of December thanks to the holiday shopping season. Furthermore, it would be tough to prepare the financial statements for the entire year during that peak selling season. Similarly, revenue for some tech companies will be skewed toward the back half of the year.

Some companies get their major revenues only after summer and such firms opt for an October fiscal year end, which gives accountants ample time to prepare financial statements and set budgets for the next year.

In addition, companies that depend on U.S. government contracts might choose a September 30 year-end to coincide with the federal government's year end.

Some companies opt for a different fiscal year to cut auditing costs and ensure the availability of accounting firms, which would be very busy during January, February and March when most companies are closing and auditing their books.

Apart from seasonal reasons, the start date of a company plays a crucial role in determining the fiscal year. For example, if a company starts in October, it might want to end the year on October to gauge the income and expense for one full year.