A fiscal year is a period of twelve months that companies chose to report their financial information. This can run with the calendar year i.e. January to December, at the end of the financial year, in line with the academic year or at a revenue cycle of the company’s choosing and usually based on their accounting and external auditing practices.
How a fiscal year works
When using the financial information reports to inform investment decisions, it is crucial that investors understand what the company’s fiscal year is so they can accurately measure earnings year on year.
The IRS allows companies to pay tax either based on their fiscal year or the calendar year. They define a fiscal year as 12 consecutive months ending on the last day of any month except December. If it ended on the last day of December they would follow the calendar year and therefore be a calendar year taxpayer.
Fiscal years are commonly referred to when discussing budget and are used to review and measure the financial performance of a company or a government and are often referred to by their ending year. For example, FY2020.
The US government’s fiscal year runs from the 1st of October to the 30th of September, but educational institutions typically run theirs in line with the academic year and non-profit organizations generally runs from the 1st of July to the 30th June to align with the timing of grants awards.
What else do you need to know?
Comparable financial information
Investors can use fiscal year reports to compare the income and expenses of a single organization within the same time period year-on-year. This can help inform their investment decisions and determine good investment opportunities.
Can be difficult to compare different organizations
As the fiscal year can vary from company to company it can be difficult to compare organizations financial information and performance with each other as they cover different time periods. Depending on their business cycle, some organizations may run to the calendar year whilst others may run to align with their seasonal business cycle.