Quarter on Quarter (QOQ)
It is the change/difference between the latest two consecutive quarters
Quarter On Quarter is the change/difference between the latest two consecutive quarters.
We can further quantify the QoQ by taking the ratio of the change in performance between two quarters and the performance from the last Quarter to give a measurable percentage.
Percentage QoQ = [Q2 performance - Q1 performance]*100 / Q1 performance
- Q2: Current Quarter
- Q1: Previous Quarter
It refers to the percentage change of the same period from previous quarters. It is a measurement used on an economic scale or a business.
Thus, it helps the economic units, including:
- Households or investors who aim to stabilize their current conditions
Governments can benefit from this metric as it helps them understand their country's Gross Domestic Profit-GDP, whether it is in growth or decline, and know their economic health.
- Quarter on Quarter (QoQ) measures the percentage change between consecutive quarters, offering insights into economic or business performance.
- Tracking QoQ helps identify economic shifts - growth or decline - pinpointing when expansions or contractions occur, aiding governments, businesses, and investors.
- Businesses use QoQ analysis for strategic decisions like production quantities, pricing, and marketing strategies, helping adapt to market changes.
- Investors leverage QoQ data to gauge company health, informing stock purchase/sale decisions and portfolio diversification strategies.
Here is an example to better understand the concept of Quarter-On-Quarter.
In this scenario, let’s examine the( ) of a country over the 4 quarters of a year.
Following are the quarterly values :
Quarter 1 (Q1) - January to March: $400 billion
Quarter 2 (Q2) - April - June : $420 billion
Quarter 3 (Q3) - July - September: $450 billion
Quarter 4 (Q4) - October - December : $430 billion
Conducting the QoQ analysis, given the formula,
Percentage QoQ = [Q2 performance - Q1 performance]*100 / Q1 performance
- Q2 vs. Q1: ($420 billion - $400 billion)*100 / $400 billion = 5% increase
Interpretation - Q2 showed a 5% increase in GDP compared to Q1 indicating an expansion (boom) in the.
- Q3 vs. Q2: ($450 billion - $420 billion) *100 / $420 billion = 7.14% increase
Interpretation - Q3 showed a 7.14% increase in GDP compared to Q2, implying continued.
- Q4 vs. Q3: ($430 billion - $450 billion)*100 / $450 billion = 4.44% decrease
Interpretation - Q4 showed a 4.44% decrease in GDP compared to Q3, indicating a contraction (bust) in the economy.
This analysis precisely pinpoints the quarters when the economy experienced growth and when it faced a decline. The government, policymakers, and economists can then attribute these fluctuations to a crisis, seasonality, policy changes, etc. This analysis helps refine the implementation of fiscal and monetary policies that better align with the needs of the economy.
Since it is a helpful tool to assess a macroeconomic variable, many companies use Quarter on Quarter (QOQ) to understand their business activity performance, whether they have a profit or loss.
To make Business decisions, we should consider:
- How many units to produce
- What materials to purchase
- The sale price of each unit
The metric helps companies understand the QOQ pattern to determine if any adjustments are needed in the products they sell, the marketing strategy they implement, or the production cycle using Economic Production Quantity-EPQ or Economic Order Quantity-EOQ.
Finally, it helps households or investors make decisions about the securities and their financial plans that all require a thorough understanding and reading of thethe companies.
Investors refer to these QOQ data to examine the company's financial position and health as they want to understand the performance pattern of those companies they invest in because maximize their profits and minimize losses.to
QOQ is an effective quarterly metric used especially for corporations and, which allows businesses to track their performance and activities to keep track of their goals.
Because of this tool, companies can measure QOQ earning growth as they observe it in multiple quarters to identify longer trends helping them to determine whether the increase is positive or negative in profits and the percentage upsurge or decline.
Since it is used in accounting and finance, this ratio QOQ gives insights into the trends as it is a percentage resulting from the difference between two periods.
This allows them to understand the seasonality of the products they sell, the services they provide, and the level of supply and demand. It also gives insights to companies about the specific events that might increase the profit in that period.
Investors benefit from such measurement as well. Investors who purchase stocks from publicly listed companies review their financial data and examine the companies' revenues to determine their corresponding performance.
It will help investors decide whether to buy or sell a stock to maintain their diversified portfolio with a sustained profit.
Investors review the prices of the stocks quarterly to forecast the performance of the stock relative to the company's activity through a comparison of different quarters and periods.
QOQ is an efficient metric for multiple investors and businesses as it helps them to identify the company's performance and gives a better picture of the current business activities.
This metric examines the short time information between the periods. Also, it helps the company measure progress to achieve the set policies' goals afterward. Thus, it will allow the company to check if there is any need for adjustments.
Thus, it aims to calculate the short-term performance to understand the sales growth, customer satisfaction, etc.
Some other time frame analysis commonly used is the Year Over Year (YOY) and Month Over Month (MOM).
Year Over Year (YOY)
Year Over Year (YOY) is a metric that compares the current year with the previous one. It is the change in performance over the same Quarter over the two latest consecutive years. Consequently, it is meant to examine long-term performance instead.
YOY looks at the business activities throughout the year and measures the company's long-term performance, health, and capabilities.It gives a neutral analysis for the year in terms of the trends shown between the years.
In addition, it indicates whether the negative outcome in QOQ from a YOY perspective could show that it is an everyday event for the company's industry.
Sometimes, economic events, variations in the international markets, or an unexpected event could hit the economy, affecting many industries to either flourish or diminish.
This factor results in analyzing and identifying the abnormal trends or performance in the company's business. It allows the company for a wake-up call for changes in its strategies or tactics that need to be followed to control and manage its performance.
Month Over Month (MOM)
Month Over Month (MOM) is a metric that compares the performance of a variable in the current month with the previous month. Consequently, it is meant to examine short-term performance.
This metric makes it extremely easy to identify the obvious trends of a particular organization or business. In particular, it is used to understand trends of( ) of a business.
This measurement is not commonly used for any economic analysis given that economic variables tend to fluctuate over a longer period, and not monthly. No real change in macroeconomic variables can be observed on a monthly basis.
Additionally, this metric is extremely volatile, given that it’s short term, and hence wouldn’t capture the true essence of a trend, and whether in reality it is declining or increasing.
Researched and Authored by Noor H | LinkedIn
Reviewed and Edited by Sreelakshmi Sreejith | LinkedIn
To continue learning and advancing your career, check out these additional helpful WSO resources: