What is a 'Quarter On Quarter - QOQ'
Quarter on quarter (QOQ) is a measuring technique that calculates the change between one financial quarter and the previous financial quarter. This is similar to the year-over-year (YOY) measure, which compares the quarter of one year (such as the first quarter of 2005) to the same quarter of the previous year (the first quarter of 2004). The measure gives investors and analysts an idea of how a company is growing over each quarter.
BREAKING DOWN 'Quarter On Quarter - QOQ'
For example, the QOQ measure can be used to compare the earnings between quarters. Let's say that the ABC Company's first-quarter earnings were $1.50 per share and its second quarter earnings were $1.75 per share. This means that the company has grown its earnings by 16.6% QOQ ($1.75-$1.50/$1.50), which is a good sign for investors.
QOQ allows a business to monitor shorter-term changes, as well as progress towards any goals or benchmarks that have been set for the year. It can provide valuable information as to how a company is performing and allows for a quicker opportunity to make process changes if they are required.
Understanding a Quarter
When used in reference to financial or accounting principles, a quarter (Q) is a consecutive three-month period within the year. Traditionally, the first quarter (Q1) refers to the months of January, February and March. Each subsequent three-month period represents Q2, Q3 and Q4 respectively.
When used as part of a QOQ analysis, a business would compare financials from Q2 (April, May, June) to Q1 (January, February, March). This varies from a YOY comparison where the same quarter would be compared from one year to the next. For example, Q1 of 2016 would be compared to Q1 of 2015 in a YOY review.
Issues of QOQ Analysis
There are circumstances where QOQ analysis may not provide an entire picture as to the health of an organization. For example, if an industry experiences seasonal sales variances, such as landscapers or holiday décor sellers, what may appear to be a downward trend may actually be an industry norm. The same can apply if a business experiences higher earnings during a peak season that may reflect as abnormally high growth when examined from one quarter to the next. To compensate for normal shifts in business, an organization may choose to adjust the figures seasonally. This can help produce a more accurate picture throughout the year.
Since YOY analysis involves the examination of the same quarter from one year to the next, it does not tend to require a seasonal adjustment to provide valuable data.