14-week quarters: Financial markets get confused.

# How 14-Week Quarters Confuse Financial Markets

Feb. 6 2014 9:09 AM

# How 14-Week Quarters Confuse Financial Markets

The New York Times did an earnings release this morning, and it's a little bit confusing. The company keeps emphasizing that numbers being slightly down in 2013 from where they were in 2012 is actually good news between the NYT's fiscal 2013 contained fewer weeks than the NYT's fiscal 2012. As a casual reader just looking to ascertain whether or not the paper is going out of business (the answer is "no"), it's hard to do this math in your head. But the surprising conclusion of academic research by Rick Johnston, Andrew Leone, Sundaresh Ramnath, and Ya-wen Yang (PDF) is that even supposedly sophisticated financial markets get confused by this.

Here's how it works. For accounting purposes, a firm is allowed to define a "quater" as either a span of 3 months or else a span of 13 weeks. A "year" is then four quarters. Since a year contains exactly 12 months, that means that if you define your quarters in terms of months everything adds up. But if you define your quarter in terms of weeks there's a problem—13 x 7 x 4 = 364 and a calendar year contains 365 (or sometimes 366) days. Consequently, a firm that defines its quarters in terms of weeks needs to hold a 14-week quarter every four or five years. That creates a situation in which you need to do a little math to get a proper comparison. These aren't nice round numbers that are easy to do in your head, but making the adjustment doesn't require you to do anything conceptually difficult. What's more, the occurrence of 14-week quarters is entirely predictable. So the impact of the extra week on earnings should be fully priced into financial markets in advance.