What Is YOY (Year-Over-Year )?
The term Year-over-Year (YOY), also known as “year-on-year”, is a financial comparison that’s often used to compare two or more events, on an annualized base. The YOY comparison allows you to determine if the financial performance of a company is improving, stagnant, or worsening. You may see in financial reports, that a certain business’s revenue has increased on a year-over-year basis for the third quarter of the past three years.
Main Point
- The Year-over-Year (YOY), is a way to evaluate two or more events in order to compare their results from one period against those from a similar period.
- Comparing a company’s financial performance YOY is a popular way to assess its financial performance.
- Investors who want to know a company’s performance can use the YOY report.
Understanding Year-Over-Year Growth
The growth year-over-year compares the company’s current financial performance to its figures for the same period a year ago.
This comparison is considered to be more accurate than a monthly comparison which can often reflect seasonal trends.
Comparing YOY includes annual, quarterly and monthly performance.
Why is YOY important?
Why is it important to measure performance year-over-year?
- It accounts for seasonal fluctuations. Some companies have fluctuating performances from month to month, so reading performance at the same point inside the year creates a beneficial comparison.
- It allows company leaders to establish baselines. By the use of the YOY assessment for several years in a row, a company’s management team can pick out boom tendencies and estimate a baseline sales or different metric for forecasting.
- It’s useful for investors. The intention of investing in a organisation is to support the employer’s increase and earn dividends, so buyers can use the YOY evaluation to predict the price of their returns and decide whether or not the organization is a good fit for his or her investment dreams.
Pros and cons of using year-over-year analysis
These are the advantages and disadvantages of using this metric as a way to measure growth in a business:
Advantages of YOY
Use year-over-year comparisons to your advantage:
- This is a way of measuring performance objectively.
- Calculating the YOY is easy and does not require complicated software.
- The result is presented as a percentage that can be read and interpreted quickly.
Disadvantages of YOY
Although year-over-year comparisons can be useful for evaluating the performance of a business, they may not be the only metrics used by business leaders because of these disadvantages:
- The broad scope of the report does not provide any insight into how to improve performance month-to-month.
- The analysis is not meaningful for newer companies because they lack enough data.
- It is possible that the performance of a year may not be accurately summarized because it only tracks two data points.
How to calculate YOY in 4 steps
To calculate YOY, you can use this equation:
YOY = (This year’s value – Last year’s value) / (Last year’s value)
How to find the value of this number in four easy steps:
1. Decide on a metric with which you can derive YOY values
You can use the YOY method for many different business values. Business leaders and investors often track revenue year-over-year, but can also use other values found in a financial statement. Earnings Before Taxes and Interest (EBIT), Economic Value-Added, Net Cash Flow, Liquidity Ratio and others are all included. Your objective for performing this analysis may determine the metric that you use. If you are a Store manager You can compare the billed hours of employees for each holiday day to determine how many new hires you need.
2. Subtract two applicable data points
After selecting the data sets that you want to use, subtract the value of this year from the value of the previous year. Subtract the value of the most recent year from the value of the least recent year if you are calculating YOY for two previous years. After applying the formula, the output is the difference between the values. This could be revenue, profit, or production volume.
3. Divide the difference
Divide the difference by the value of the original. Divide the difference between this year’s value and that of last year if you are calculating YOY. Divide the difference between the two years by the value from the older year. If the values have increased or decreased, you may get a positive decimal or a negative one.
4. Convert to a percentage
To find your percentage, move your decimal point two places right. You can either round up the percentage to a near-whole number or use decimals depending on how precise you need it. You can use a negative answer to express a decrease in percentage, while a positive result represents an increase in percentage.
Year-over-year report
Accounting or management staff may be asked to prepare a report that summarizes YOY results. The typical YOY may look like this:
| 2018 | 2019 | YOY change | |
| Q1 | 10,000 | 11,000 | 10% |
| Q2 | 12,000 | 15,000 | 25% |
| Q3 | 14,000 | 16,000 | 14% |
| Q4 | 10,000 | 13,000 | 8% |
In the column on the right, the percentages represent the YOY changes. The change in this case is positive and indicates that the value being measured has increased. You can use several tools and resources at work to calculate the year-over-year value for financial analysis as well as important performance metrics.
YOY examples
Here are some examples on how companies use YOY insight:
Example 1
Here is an example of a company that uses YOY to analyze its results: The leadership team at Nutritional Food Co. found that their company had mixed results for the fourth quarter. The YOY analysis of revenue showed that earnings had declined even after the acquisitions which increased sales. The YOY revenues alone indicate a decline in the value of the company. However, this could be due to the focus by the leadership team on strategic acquisitions, which may take years before they show profits. This example shows how it is important to look at YOY revenues in relation to the company’s goals and growth strategy.
Example 2
Here’s an example of how a government agency might use this technique:A state organization dedicated to raising the employment level of citizens within the state may use YOY analysis to determine employment trends in manufacturing and measure success of a ongoing program to boost manufacturing in the state. This is an example of a government agency using this technique. A state organization that aims to increase the employment levels of its citizens might use the YOY method to determine employment trends and measure the success an ongoing program to promote manufacturing in the State. The organization’s management team performs a YOY comparison and finds that the YOY growth in manufacturing jobs is 2% greater than previous years. This indicates that the program may be successful.
FAQs about YOY (Year-Over-Year )
What Is YOY Used For?
When comparing two time periods, YOY can be used. It allows you to compare earnings from the third quarter of this year with earnings from the third quarter last year. This is used to compare the growth of a company in terms of profits and revenue. It can also be used for describing changes in an economy in money stock, GDP and other economic measures.
What does yoy mean?
Year-over-year is , also known as YOY. It’s a way to compare data between the current year and .
How to calculate yoy growth?
Calculations of YOY are simple and expressed in percentages. The current value would be divided by the value of the previous year and then subtracted one. (this year) ÷ (last year) – 1.
What is the YoY formula?
The first formula is: YoY growth = (current period value / prior period value) – 1. This formula uses values that are specific to the metric being calculated. Divide the revenue of the previous year by the revenue of the current year to calculate your revenue growth.
What is the difference between YoY and MoM?
YoY means year over year and MoM means month over month. You can use these numbers to adjust for seasonality. In places where Christmas is celebrated, the editing activity drops, so it’s not useful to compare numbers from December with those of July.
What’s the Difference Between YOY and YTD?
YOY is a change over a period of 12 months. Year to date (YTD). measures the change from the start of the year. YTD is a way to keep track of a total. YOY provides a comparison.
