Rule #1 Finance Blog

With Investor Phil Town

FISCAL YEARS

Q:  I’m looking at the numbers for a company’s 2005 Annual Report, and the EPS from the report doesn’t match the EPS reported on MSN Money.  Why is that?

A:  Make sure you’re comparing numbers from the same time period. Businesses use fiscal years for their accounting.  A fiscal year is still twelve months, but the twelve months can start any month of the year. 

Most businesses use a calendar year for their fiscal year,  but it is not at all uncommon for a business to start their fiscal year on some other month than January.  For example, Microsoft’s fiscal year starts and ends in June — so when you look at the quarterly dates you’ll see that first quarter starts in June 2006. 

The main reason businesses don’t use the calendar year for their fiscal year is that December has a lot of holidays with gifts involved, and retailers hate to get stuff back that they sold in a previous fiscal year because they can’t debit that year anymore.  That year is put to bed and audited.  So they would have to start out the new year with a bunch of returns that hit their sales and earnings for the first quarter, which messes up bonuses and earnings reports and generally makes everyone feel bad. 

Now go play!