Understanding Quarter Over Quarter (Q/Q)
Quarter over quarter (Q/Q) is a powerful metric for measuring an investment or a company’s growth from one quarter to the next. Q/Q growth is most commonly used to compare a company’s growth in profits or revenue. However, it can also describe changes in an economy’s money supply, gross domestic product (GDP), or other economic indicators.
Key Insights
- Quarter over Quarter: Q/Q measures the growth of an investment or a company from one quarter to the next.
- Broad Application: This metric can measure changes in vital statistics like GDP.
- Analyst’s Tool: Q/Q is crucial for reviewing a company’s performance over multiple quarterly periods.
- Accessibility: Quarterly results are public, often found on SEC filings or company websites.
- Seasonal Adjustments: Comparing Q/Q data requires awareness of seasonal factors or temporary conditions.
- Variations: You can explore month over month (M/M) and year-over-year (YOY) measures for different perspectives.
Dive Deeper: How Q/Q Analysis Works
Investors and analysts rely on financial statements available quarterly or annually to assess a company’s financial health. Publicly available through SEC’s EDGAR database or a company’s website, these statements—often in the form of 10-Q reports—provide a snapshot of a firm’s financial performance.
Q/Q compares metrics from one fiscal quarter to the previous one to gauge growth or decline. A fiscal quarter typically spans three months, and Q/Q gives a rate of change using the formula:
(Current quarter - previous quarter) / previous quarter
Economic reports, such as GDP released by the Bureau of Economic Analysis (BEA), are analyzed quarterly to highlight trends in economic performance. These analyses guide policymakers, businesses, and individuals in making informed decisions.
A series of declining GDP over two consecutive quarters, for instance, often signals a recession, prompting governmental adjustment policies to mitigate economic fallout.
Exploring Q/Q Variations
Other variations of Q/Q offer different insights:
- Month over Month (M/M): This compares monthly figures. While useful, it’s often more volatile due to one-time events like natural disasters.
- Year over Year (YOY): This compares annual performance over consecutive years, providing a long-term view and reducing short-term volatility.
Case Study: Real-World Q/Q Application
The following table details the Q1 and Q2 earnings for Intel and IBM in 2018.
| (in millions) | Intel | IBM |
|---|---|---|
| Q1 Earnings | $4,500 | $1,700 |
| Q2 Earnings | $5,000 | $2,400 |
| Q/Q change | (5,000 – 4,500) / 4,500 = 11% | (2,400 – 1,700) / 1,700 = 41% |
While Intel’s earnings rose by 11% from Q1 to Q2 in 2018, IBM’s Q/Q growth was an impressive 41%. However, an investor should examine several quarters to discern trends and adjust for seasonal impacts.
Comparisons between companies with differing fiscal quarter starts can provide distorted views. Factors like seasonality must be adjusted to ensure accurate analysis.
By understanding and applying Q/Q and its variations, investors can gain meaningful insights into financial performance, making more informed investment or policy decisions.
Related Terms: Month-over-Month (M/M), Year-over-Year (YOY), Financial Statements, Gross Domestic Product (GDP).
