Corporate Finance & Accounting

Quarter-on-quarter (Q/Q)

What is quarter-on-quarter (Q/Q)?

Quarter-on-quarter (Q/Q) measures the growth of an investment or company from one quarter to the next. Q/Q growth is most commonly used to compare a company’s profit or revenue growth, although it can also be used to describe changes in an economy’s money supply, gross domestic product (GDP), or other economic indicators.

key takeaways

  • Quarter-on-quarter (Q/Q) measures the growth of an investment or company from one quarter to the next.
  • Q/Q is also used to measure changes in other important statistics, such as gross domestic product (GDP).
  • Analysts consider Q/Q when reviewing a company’s performance over multiple quarters.
  • Quarterly results are available through the Securities and Exchange Commission (SEC) or the company’s website.
  • Comparing Q/Q information between companies with different quarter start dates may distort the analysis due to seasonal factors or temporary environmental conditions.
  • There are other changes to Q/Q, such as month-to-month and year-to-year.

Understanding quarter-to-quarter (Q/Q)

Investors and analysts examine financial statements issued annually or quarterly to assess a company’s financial health.Quarterly reports are available through EDGAR database It is provided by the Securities and Exchange Commission (SEC) or the company’s website and is called a Form 10-Q. Analysts look at Q/Q numbers and changes when reviewing a company’s performance over multiple quarters.

Q/Q is the rate of change in performance between a fiscal quarter and the previous quarter. A quarter is usually three months or 90 days. Q/Q measures the change in growth rate of different financial numbers and indicators found in financial statements from one period to the next. Typically, a comparison is made between one quarter of a company’s fiscal year’s report and the previous quarter’s report. Q/Q is calculated as follows:

(this quarter – last quarter) / last quarter

Certain economic reports are released quarterly and compared to previous quarters to indicate economic growth or decline. For example, the Gross Domestic Product (GDP) report published by the Bureau of Economic Analysis (BEA) is published quarterly and influences decision-making by governments, businesses and individuals.

The report shows how GDP changes from one quarter to the next and can signal a possible economic outcome, such as a recession or depression, as a recession is considered two consecutive quarters of declining GDP. Analyzing changes in GDP each quarter will allow policymakers to make policy adjustments to avoid further economic impacts, for example, if they witness a decline in GDP.

Quarterly Change (Q/Q)

Other changes to Q/Q are month-to-month (M/M) and year-to-year (YOY). MoM measures growth in previous months, but tends to be more volatile than Q/Q because the rate of change is affected by one-off events such as natural disasters. YOY measures the change in performance within a year compared to the previous year. YOY contains more data, so it can better understand the long-term picture of the underlying reporting data. The Q/Q rate of change is generally more volatile than the YOY measurement, but less volatile than the M/M data.

real world example

The table below shows the earnings of Intel Corporation and IBM Corporation for the first and second quarters of 2018.

(in millions)

Intel

IBM

first quarter earnings

$4,500

$1,700

second quarter earnings

$5,000

$2,400

Q/Q change

($5,000 – $4,500) / $4,500

($2,400 – $1,700) / $1,700

= 11%

= 41%

resource: IBM2018; Intel2018

While Intel’s earnings rose 11% from the first to the second quarter of 2018, IBM’s earnings grew an impressive 41% quarter-on-quarter. However, note that only two consecutive quarters were examined. Investors check other quarters to see if the changes are trends or just seasonal or temporary adjustments.

Comparing Q/Q information between companies with different quarter start dates can distort the analysis – times included can vary, and seasonal factors can be skewed. Investors must consider several quarters over a period of time to determine whether changes reflect ongoing trends or are influenced by external factors. For any investor, it’s important to eliminate seasonal effects as much as possible when comparing companies with different quarterly start dates.

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