Understanding Stock Market Quarters

Understanding Stock Market Quarters
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Companies listed on the stock market, known as public companies, must report their financial status on a regular basis, as required by the U.S. Securities and Exchange Commission. In addition to an annual financial report known as Form 10-K, companies also file quarterly reports, known as Form 10-Q.

Shareholders and potential investors rely on a company's financial statements or stock market reports to understand the fiscal health of the company by looking at information, such as what dividends it offers and its stock price, so they can determine relevant stock market ratios, market valuation and cash flow, as well as make well-informed investment decisions including choosing an appropriate investment strategy.

Because many companies post earnings reports on a similar schedule, the stock market's annual calendar is divided into four quarterly periods known as earnings seasons.

Stock Market Fiscal Year

A publicly traded company establishes an annual reporting schedule based on its fiscal year. According to Nasdaq, the fiscal year is a consecutive 12-month period ending in the fourth fiscal quarter established for financial accounting purposes. It may or may not coincide with the calendar year. This means that every public company could operate on a different fiscal year schedule.

For example, based on Wall Street Journal reports, the fiscal year for General Motors begins on ‌Jan. 1‌ and its fourth quarter ends on ‌Dec. 31‌, but USA.gov says the fiscal year for the federal government begins on ‌Oct. 1‌ and ends on ‌Sept. 30‌ in the following calendar year. A company releases its annual financial report at the end of each fiscal year or fourth quarter.

Stock Market Quarters

Under the Securities Exchange Act of 1934, public companies are required to file quarterly financial reports with the U.S. Securities and Exchange Commission. These reports, known as 10-Q reports, provide a detailed accounting of a company's financial results, including dividends, for the most recent quarter of its operations.

A 10-Q report includes financial statements, an assessment of business risks, a description of significant legal proceedings with which the company is involved, management's discussion and analysis of business operations and descriptions of other major financial transactions.

Four Earnings Seasons

The stock market is divided into four quarterly earnings seasons that coincide with the quarterly report postings from companies that use the calendar year as their fiscal year.

Earnings seasons begin each January (first quarter), April (second quarter), July (third quarter) and October (fourth quarter), as these are the three-month periods immediately following the end of the previous quarter and the time during which quarterly reports are made public.

Investors often rely on the earnings season reports from major companies as an indicator of the overall economic health of a particular industry sector. Since they are prepared every three months, they typically give the most up-to-date information about business activity and economic trends.

Similar Practices for Private Companies

Private companies that are not traded on the stock market are not required to make disclosures by filing publicly available quarterly reports. Generally accepted accounting principles, however, usually call for private companies to follow similar annual and quarterly reporting cycles so that a company's private shareholders and investors can gauge the financial status of the firm.

Private companies may also make their annual and quarterly financial reports publicly available even though they are not required to do so. For example, Cargill, the largest private company in the United States, releases a summary of its financial information every quarter.