How to read the quarterly financial report of a company?
A quarterly report is a summary or collection of unaudited financial statements, such as balance sheets, income statements, and cash flow statements, issued by companies every quarter (three months).
The quarterly report for a company will include specific financial reports that show the financial health and growth of a company. Specifically, a quarterly report will include the company’s statement for the year-to-date. Additionally, the quarterly report will also show comparative financial reports for the prior year in order to help show the growth of the company. There are two different ways to compare the quarterly financial statements of a company: quarter-on-quarter (QoQ) and year-on-year (YoY).
- Quarter-on-Quarter (QoQ)
QoQ is a comparison of the current quarterly financial statements with the prior quarterly financial statements of a company. This sequential comparison can show the immediate growth that a company has and how they are doing in this small window of time.
- Year-on-Year (YoY)
YoY is a comparison of the current quarterly financial statement with the exact same quarterly statement one year ago. This can help determine the overall direction and profitability of a company, and also can assist in evaluating the consistency of the company’s performance over time.
It is important to note that, if the company is a cyclical company or is in a specific seasonal industry, the quarterly report must be taken within the context that certain quarters will consistently be high in performance, while others will be consistently low.