UK: BEGINNING OF YEAR-ENDS.

UK: BEGINNING OF YEAR-ENDS. - Good and bad reasons for the choice of a balance sheet date.

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Last Updated: 31 Aug 2010

Good and bad reasons for the choice of a balance sheet date.

How do companies decide upon their year-ends? Indeed, does it really matter when the balance-sheet date falls? A majority of businesses choose obvious dates, such as March or December, to coincide with the close of the tax or calendar year. Yet a substantial minority settle for all kinds of other times. These are often related to seasonal factors. Retailers, like Kingfisher and Sears, tend to report to the end of January, ie after Christmas and the sales. Motor manufacturers and suppliers - Lucas Industries - for one - opt for the end of July, on account of the factory breaks in August and new car registrations.

There may be other odd reasons for adopting particular dates, certainly in the case of large groups. Until last year, The Rank Organisation's year ended in October, a hangover from the days when travel was a significant part of its business. The company has now switched to December, which brings it into line with its two American associates - US companies generally work to a calendar year. The change also avoids the danger of running into the festive season, since the closed period - between the year-end and the announcement of results - is getting shorter. NFC, the transport group, went the other way in 1980, and moved from December to October for internal budgeting reasons. The company draws up its annual budgets in August and September for the following reporting year, and its busiest period is around December. This meant that operations managers were budgeting for the year ahead before they were through the busy time of the year in progress. "In August 1976, we'd be budgeting for December 1977 - it was really quite blind," comments Katie Frankel, head of investor relations. Now, unlike many seasonal businesses, NFC has its busy period falling in the first quarter, not the final one. "I would advise any company to do that," says Frankel.

The reasons for adopting a peculiar year-end can sometimes persist even though the original justification is lost in the mist of time. Smiths Industries, for example, still reports to the end of July, even though it got out of motor components back in 1983. Smiths is now listed under the general engineering heading, but has chosen to retains its odd year-end on three grounds, as public affairs director Russell Plumley explains. First, holidays are still traditionally taken in August. More important is the fact that, by reporting separately from most engineers, the company believes it gets more attention from investors and analysts. Thirdly, early autumn - when the accounts are actually being prepared - is a fallow time for printers and designers. "It gives us good buying power," says Plumley.

Getting full value out of professionals is a sound reason for reporting out of sync with the herd. The professionals don't disagree. "If the world were arranged for the convenience of accountants, there would be a wider spread of reporting dates," observes Ron Paterson, technical partner at Ernst & Young.

Analysts are less sure, however. Having companies within a sector reporting fairly close to each other certainly simplifies comparison. On the other hand, life gets hectic if there is too much bunching. It also means that analysts get a snapshot, rather than a flow of data. What nobody likes is a company changing its year-end. This creates work all round and makes year-on-year comparisons much more difficult, both internally and externally.

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