Sequential growth

When looking at the results for a quarter or half year, it is useful to compare the numbers with the prior period of the same length, as well as making an year-on-year comparison.

The comparison with the immediately prior period is a sequential one. This may be, for example, a comparison of the fourth quarter results with the third quarter results, or a comparison of the first half results with the second half of the previous year. Growth over that prior period is sequential growth.

Like other growth numbers, sequential growth numbers may sometimes need adjustments to numbers such as organic growth.

Short term changes are often the results of seasonal variations, and this should also be adjusted for. A simple technique for doing this is to compare the change with the average change in previous years, like this:

1+ underlying growth = (1 + growth this year)/(1 + average growth in previous years)

The advantage of looking at sequential comparisons is that it can help in spotting recent changes in trends. The disadvantages are is that it is easy to mistake mere fluctuations for trends, and the (easily forgotten) need for seasonal adjustments.

Copyright Graeme Pietersz © 2005-2019