The Quarterly View

Taking the quarterly view

It's not too late to review 2024 annual financial statements. In fact, most public companies are still reporting Q4 and full year results.

Like other business owners, I have a strong preference for monthly financial statements; but, with yearend in full swing, it felt like a good time to pitch the quarterly financial view. That's a fancy way of saying 3 months of financial information (for example, the Q4 P&L would include September through December).

Why this matters

There are a few benefits to reviewing quarterly financials over a monthly view.

1. Trend smoothing — Quarterly timeframes are smoother than monthly (and monthly is smoother than weekly) so you'll get a less lumpy view of your business. Have you ever paid a large bill in a single month which subsequently makes that month look like a financial disaster? This is why we group 3 months at a time. Remember, longer timeframes = smoother results and shorter timeframes = lumpier results.
   ​
2. Review slower-moving metrics — Some ratios need more data between each calculation. Your days sales outstanding (DSO) likely won't change much from January to February... but it could change from December 31st to March 31st (i.e. a single quarter). Metrics that come to mind here: debt-to-equity, current ratio, all working capital ratios, efficiency ratios, etc.
   ​
3. Dampen seasonality — For hyper-seasonal businesses (flannel anyone?), a quarterly view can increase comparability among on-and-off season periods. It's not perfect, but it's better than the alternative.
   ​
4. More time in one view — When looking at any business, I have an urge to go as far back in time as possible. With 8 columns (i.e. 8 quarters), I can review 24 months of financial data vs. an alternative of 8 columns as 8 months. If you want to review long stretches of time at once, quarterly is best.

When to use this?

There are 3 times which make sense to use this view:

1. At the end of each quarter — An obvious one.
2. At yearend — A great financial report format is 4 quarters of P&L with the full year total as a final column. It's like seeing a time sequence breakdown of the full year.
3. When trying to review long stretches of financial data — If you want to review 2+ years of data, the quarterly view is a great way to do it. You'll better spot trends in fixed costs and margins.

Every U.S. bank reports a rolling 5 quarters of financial information when disclosing results to investors. Take a page out of their playbook and use this one yourself, it's a great way to spot trends.

Homework — Grab your last 5 quarters of financial information and then compare full year 2024 to full year 2023 off to the side. In those 7 columns of financial data, you'll get a complete picture of performance and trends.