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DEFINITION of 'Quarter - Q1, Q2, Q3, Q4'

A quarter is a three-month period on a company's financial calendar that acts as a basis for the reporting of earnings and the paying of dividends. A quarter refers to one-fourth of a year and is typically expressed as "Q."

The standard four quarters that make up the year are: January, February and March (Q1); April, May and June (Q2); July, August and September (Q3); and October, November and December (Q4). A quarter is often shown with its relevant year, as in Q1 2018 or Q1/18, which represents the first quarter of the year 2018.

BREAKING DOWN 'Quarter - Q1, Q2, Q3, Q4'

All public companies in the United States must file quarterly reports, known as 10-Qs, with the U.S. Securities and Exchange Commission (SEC) at the end of each quarter. Each 10-Q contains the public company's unaudited financial statements and company operations information for the previous three months (quarter). 10-Qs are required for the first three quarters of the year. Each publicly traded company must also file an annual report, known as a 10-K, which accounts for the first three quarters with 10-Q reports, as well as the fourth quarter, and will often contain much more detailed information about the company than 10-Qs do.

Companies, investors and analysts often use data from different quarters to make comparisons and evaluate trends. Because there are four quarters in a year, one may evaluate a company’s performance over time with a much higher degree of specificity than if one were doing so on a yearly basis. For instance, an investor may track a company’s performance over the last eight quarters to determine if the company is consistently performing well. Certain businesses or industries, however, may often vary in performance on a seasonal basis. For example, one may expect that an ice cream or smoothie company will bring in more revenues during the summer (quarter 2 and/or 3). Therefore, an investor might track this company’s performance over the past few Q3s for a better view of their progress than if the investor were looking at all four quarters of the year.

Likewise, many retail companies see a spike in business during the holiday season (Q4), so if one were tracking the performance of retail companies, comparing the performance of fourth quarters in the last couple of years may be a good decision. Box-office ticket sales are particularly tied to the time of year when the vast majority of sales taking place in the summer and during the holiday season, with the beginning of the year and the early months of fall traditionally seeing very low sales. Yet, how seasonal companies perform during off-seasons is also very important to consider, as most companies in seasonal industries are active year-round.

Quarterly report periods are often an important time for publicly traded companies, as these earnings reports may significantly affect the value of a company’s stock. If a company has had a good quarter, its stock value may increase, but if the company has had a poor quarter the value of its stock may decrease. Analysts’ expectations may come into play here too. If a company’s earnings per share (EPS) during any particular quarter is higher than predicted by analysts, the company’s stock will likely increase in value, and will likely decrease in value if its earnings per share is less than predicted.

There has been a growing chorus of executives and politicians who have been questioning the importance of the quarterly system. Warren Buffett, the CEO of Berkshire Hathaway (BRK), and Jamie Dimon, the CEO of JPMorgan Chase (JPM) have both been vocal critics of the system, saying that it puts too much pressure on companies and executives to deliver short term results to please analysts and investors as opposed to focusing on the long-term interests of the business. On August 17, 2018, President Trump joined the opposition saying he had spoken to business leaders who believe they would create more jobs and improve their businesses if they moved from a quarterly reporting system to a semi-annual one. The President asked the SEC to study the problem.

Non-Standard Quarters

Not all companies use the uniform quarter standard. For example, Wal-Mart Stores' first quarter is February, March, and April; Apple Inc's Q1 is October, November, and December; Microsoft Corporation's Q1 is July, August, and September; etc. In addition, certain governments use different quarter systems. For example, the first quarter of the United States federal government’s fiscal year is October, November and December, Q2 is January, February and March, Q3 is April, May and June, and Q4 is July, August and September. State governments, also, may have their own fiscal calendars.

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