Quarterly financials: Overview, definition, and example
What are quarterly financials?
Quarterly financials refer to the financial statements and reports that a company prepares every three months to provide a snapshot of its financial performance during that quarter. These financial reports typically include key documents such as the income statement (profit and loss statement), balance sheet, and cash flow statement. Quarterly financials are used to track a company’s profitability, liquidity, and overall financial health, offering valuable insights to investors, creditors, and stakeholders about the company's performance over a shorter period.
For example, a company may issue a quarterly financial report detailing revenue, expenses, profits, and any significant changes in its financial position for the last three months.
Why are quarterly financials important?
Quarterly financials are important because they provide regular and timely updates on a company’s financial health, allowing stakeholders to make informed decisions. For investors, quarterly reports are essential for assessing a company’s short-term performance and predicting future growth. For management, these reports help track progress toward financial goals and make necessary adjustments. Regular reporting ensures transparency and accountability, helping maintain investor trust and compliance with regulatory requirements, such as those set by the Securities and Exchange Commission (SEC).
For businesses, quarterly financials allow for early identification of potential issues, such as declining revenue or rising costs, enabling corrective actions to be taken promptly. For investors, it provides a consistent means of evaluating financial performance and making decisions about buying, holding, or selling shares.
Understanding quarterly financials through an example
Imagine a publicly traded company that releases its quarterly financials at the end of each fiscal quarter. The company’s income statement for the quarter shows that its revenue has increased by 10% compared to the previous quarter, while its net income has grown by 5%. The cash flow statement reveals that the company has generated positive operating cash flow but spent a significant portion of its cash on capital expenditures for expansion. These quarterly financials help investors assess the company’s growth trajectory and overall financial stability.
In another example, a startup releases its quarterly financials to show how much money it has raised in investment, how much it has spent on operations, and its overall cash position. Investors use this report to gauge whether the startup is on track to reach its business milestones or if it may need to secure additional funding.
An example of a quarterly financials clause
Here’s how a quarterly financials clause might appear in an investment agreement:
“The Company agrees to provide its investors with quarterly financial statements, including an income statement, balance sheet, and cash flow statement, within 30 days after the end of each fiscal quarter. These statements will be prepared in accordance with generally accepted accounting principles (GAAP) and will be available for review upon request.”
Conclusion
Quarterly financials are essential tools for monitoring a company's financial health and performance over a short period. By providing regular updates on income, expenses, and overall financial position, they help investors, stakeholders, and management make informed decisions. Whether for tracking growth, identifying issues, or maintaining transparency, quarterly financials play a vital role in ensuring businesses stay on track and investors are kept up to date on the company’s progress.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.