Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Seasonality

What it is:

Seasonality is a fluctuation in sales or profits during the course of a fiscal year.

How it works (Example):

For example, the restaurant industry is somewhat seasonal. Sales for many companies are stronger in summer and fall (the second and third quarter) and are lower in the winter and early spring (the fourth and first quarter). Much of this is attributable to New Year's resolutions to diet, spend less or cook more; the April 15 annual tax deadline also makes consumers more money-conscious. Accordingly, the sales of restaurant companies go up and down throughout the year but in a somewhat predictable pattern.

Why it Matters:

Seasonality is a major reason that an investor or analyst can't just make an annual sales projection and then expect the company to meet 1/12 of that sales or profit projection every month. Some months will be higher, some months will be lower. Knowing how much higher or lower those sales should be month to month will make for more accurate seasonal projections.