What Is Quarter Over Quarter (Q/Q)?
Let me explain quarter over quarter (Q/Q) to you directly: it's a straightforward measure of growth for an investment or a company from one quarter to the next. You most often see Q/Q used to compare growth in profits or revenue, but it also applies to changes in things like an economy's money supply, gross domestic product (GDP), or other economic metrics.
Key Takeaways
- Quarter over quarter (Q/Q) measures the growth of an investment or a 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 quarterly periods.
- Quarterly results can be found via the Securities and Exchange Commission (SEC) or on a company's website.
- Comparing Q/Q information among companies with different quarter start dates can distort an analysis due to seasonal factors or temporary environmental conditions.
- There are other variations on Q/Q such as month over month and year-over-year.
Understanding Quarter Over Quarter (Q/Q)
As an investor or analyst, you examine financial statements released yearly or quarterly to assess a company's financial health. These quarterly statements are publicly available through the SEC's EDGAR database or directly on a company's website, known as 10-Q statements. You look at Q/Q numbers and changes to review performance over multiple quarters.
Q/Q is essentially the rate of change in performance between one fiscal quarter and the previous one. A quarter typically means three months or 90 days. It measures changes in growth rates for various financial numbers and metrics in the statements from one period to the next. Usually, you compare reports from one quarter of the fiscal year with those from the prior quarter. Calculate Q/Q like this: (Current quarter - previous quarter) / previous quarter.
Certain economic reports come out quarterly and get compared to previous quarters to show growth or decline. For instance, the GDP report from the Bureau of Economic Analysis (BEA) is quarterly and affects decisions by governments, businesses, and individuals. This report indicates how GDP has shifted from one quarter to the next, signaling potential outcomes like a recession—defined as a GDP decline over two consecutive quarters. By analyzing these Q/Q changes, policymakers can adjust policies to mitigate further economic issues if they see declining GDP.
Variations of Quarter Over Quarter (Q/Q)
You should know about other variations like month over month (M/M) and year-over-year (YOY). M/M measures growth over previous months but is more volatile than Q/Q because one-time events, such as natural disasters, can skew the rate of change. YOY looks at changes from one year to the previous, incorporating more data for a better long-term view. Q/Q tends to be more volatile than YOY but less so than M/M.
Real World Example
Consider this example with Intel Corporation and IBM Corporation's earnings for Q1 and Q2 of 2018. Intel had Q1 earnings of $4,500 million and Q2 of $5,000 million, giving a Q/Q change of ($5,000 - $4,500) / $4,500 = 11%. IBM had Q1 earnings of $1,700 million and Q2 of $2,400 million, resulting in ($2,400 - $1,700) / $1,700 = 41%.
While Intel’s earnings grew by 11% Q/Q, IBM’s jumped by 41%. But remember, this is just two quarters; you need to examine more to check if it's a trend or just seasonal or temporary. Comparing Q/Q across companies with different quarter starts can distort your analysis due to varying time periods and skewed seasonal factors. As an investor, always consider multiple quarters to spot real trends and remove seasonality effects when comparing such companies.
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