Year-Of-Year (YOY)

Year Over Year (YOY) is a financial comparison commonly used to compare two or more measurable events each year.

Looking at year-over-year performance, you can assess whether a company's financial performance is improving, leveling off, or deteriorating. For example, you can read in a financial report that a particular company reports a year-on-year increase in revenue in the third quarter of the last three years.

Understand Year Over Year

Year-over-year (sometimes called yearly comparisons) is a common and effective way to assess a company's financial and investment performance. The measurable events that repeat each year can be compared year-on-year. Typical YOY comparisons include annual, quarterly, and monthly performance.

Benefits of Year Over Year

YOY measurements make it easy to compare datasets to each other. For a company's first-quarter sales using YOY data, a financial analyst or investor can quickly compare the years of the first-quarter sales data to determine if a company's sales are increasing or decreasing. increase. For example, Zakoka Cola Corporation reported that net income for the first quarter of 2021 increased by 5% compared to the same quarter last year. By comparing the same month of different years, you can make an accurate comparison despite the seasonal nature of consumer behavior. 1 This YOY comparison is also useful for your investment portfolio. Investors prefer to investigate YOY's performance to see how it changes over time.

Reasoning Behind Year over Year

YOY comparisons are popular when analyzing a company's performance because it helps mitigate the seasonality that can affect most companies. Most companies have peak and low demand seasons, so sales, profits, and other financial indicators change over different periods of the year.

It is important to compare the performance of the fourth quarter of one year with the performance of the fourth quarter of other years. Looking at the retailer's fourth-quarter results compared to the previous third quarter, investors are experiencing unprecedented growth as seasonality drives the difference in results. You may be able to see it.

YOY is different from the term “sequential” which measures the previous quarter or month, allowing investors to grow linearly. For example, the number of phones sold by technology companies in the fourth quarter compared to the third quarter, or the number of seats occupied by airlines in January compared to December.

Year-over-Year (YoY) Growth Formula

The purpose of conducting a year-over-year comparison analysis is to compare recent financial performance with financial performance over the past period.

The question to be answered is, “Did our business grow faster than last year, or has growth slowed in recent years？”

The formula used to calculate the annual growth rate (YoY) is:

As above, divide the amount for the current period by the amount for the previous period, then subtract 1 to get the percentage.

For example, if a company's revenue increased from $ 25 million to $ 30 million, the year-over-year growth formula would be:

• Year-over-Year growth rate = ($ 30 million / $ 25 million) – 1 = 20.0%

Alternatively, another way to calculate the annual growth rate is to subtract the balance of the previous period from the balance of the current period and divide that amount by the balance of the previous period.

• Year-over-year growth rate = ($ 30M- $ 25M) / $ 25M = 20.0%

Both approaches have a year-on-year growth rate of 20.0%.

Interpretation Year-over-Year Growth Analysis

The main advantage of YoY Growth Analysis is how easy it is to track and compare growth rates over multiple periods, eliminating the impact of monthly volatility on the annual financial statements.

In addition, if past results reflect a complete business cycle, all cycle patterns become apparent.

The intuition of the two basic rules is easy to understand, but before reaching a definitive conclusion, take a closer look at the company's growth trajectory and identify the key underlying drivers behind the change. is needed.

• Year-on-year growth rate increase → Positive

• Year-on-year growth rate decline → minus

To give a simple example, imagine a company that had a revenue growth rate of 5% last year, but a year-to-date growth rate of only 3%.

However, despite the slightly slower growth rate, the quality of revenue generated may have improved (for example, long-term contract revenue, lower churn rates, lower customer acquisition costs).

It is a mistake to think that this year is inevitably “worse” than the previous year without a detailed analysis.

Yet another important consideration is that the growth of all companies will eventually slow down.

A mature company with an established market share is less likely to fund growth and is more likely to focus on:

• Issuance of dividends to shareholders

• Improvement of operational efficiency

• Acquire existing customer loyalty and new customers

What is Year Over Year used for？

YOY is used to compare one period with another one year ago. This allows you, for example, to compare the results of the third quarter of this year with the results of the third quarter of last year on an annual basis. It is typically used to compare a company's revenue or sales growth. It can also be used to represent the annual change in money supply, gross domestic product (GDP) of an economy, or other economic indicators.

How is the Year Over Year calculated？

The calculation of YOY is simple and is usually expressed as a percentage. This includes taking this year's value and dividing it by the previous year's value and subtracting 1: (this year) / (last year) 1.

What is the difference between

YOY and YTD？ YOY considers a 12-month change. Year to date, or YTD, looks at a change relative to the beginning of the year (usually January 1st).

What If I Am Interested in Comparisons for Less Than a Year？

You can compute month over month (MoM) or quarter over quarter (QoQ) in much the same way as YOY, and for any other timeframe, you desire.