What Does H1 and H2 Mean in Finance?
H1 and H2 Meaning
In financial and business contexts, H1 and H2 are shorthand terms for the two halves of a financial or calendar year.
H1 represents the first half of the year – “half 1”.
In a calendar year, this period usually spans from January 1 to June 30.
For companies with different financial years, H1 would represent the first six months of that specific financial year.
H2 represents the second half of the year – “half 2”.
In a calendar year, this period usually spans from July 1 to December 31.
Similarly, for companies following a different financial year, H2 represents the last six months of that specific financial year.
H1 and H2 Example
The H1 and H2 calculations are very straightforward.
It simply involves summing the relevant values from the first financial period to the sixth period (for H1) and the seventh period to the twelfth period (for H2).
For example, if a business wanted to calculate the H1 and H2 totals for revenue over the last financial year:
Period | Revenue | Half |
1 | £10,000 | H1 |
2 | £20,000 | |
3 | £15,000 | |
4 | £15,000 | |
5 | £10,000 | |
6 | £20,000 | |
7 | £20,000 | H2 |
8 | £25,000 | |
9 | £20,000 | |
10 | £25,000 | |
11 | £60,000 | |
12 | £50,000 |
H1 Revenue = £10,000 + £20,000 + £15,000 + £15,000 + £10,000 + £20,000 = £90,000
H2 Revenue = £20,000 + £25,000 + £20,000 + £25,000 + £60,000 + £50,000 = £200,000
Importance of Using H1 and H2 in Finance
So, what does H1 and H2 mean to a business, and why would they use it?
Performance Monitoring
Measuring the H1 and H2 totals are often used to monitor the performance of various financial indicators such as revenue and expenses over a year.
For instance, businesses can compare the half yearly total in the current year, with the half yearly total from the previous year to gain insights into performance.
For example, a business might compare the sales totals for H1 in the current year, to H1 in the previous year.
This comparative analysis can reveal trends and patterns and help management to act if necessary.
Instead of separating each quarter or month, H1 and H2 provides a broader view of the company’s performance over six-month periods, making it easier to identify patterns and trends.
Budgetary Control
Businesses often use H1 and H2 figures to compare actual financial performance against their budget for the year.
This helps in identifying areas where expectations are falling short the business can take action to bring performance back on track.
For example, a business budgets that revenue for the full year should be £2,000,000, which is split into a H1 forecast of £800,000, and a H2 forecast of £1,200,000.
However, the H1 total is only £700,000, so it looks likely they might not be on course to hit their target for the year.
As the H1 total has highlighted this issue, management can push the sales team harder to try and bridge the gap between actuals and expectations.