The year-over-year (YOY) calculation compares data from one time period to the previous year. When discussing economic or financial data, year-over-year calculations are frequently used. Viewing year-over-year data allows you to see how a specific variable changes over the course of a year rather than just weekly or monthly.
When assessing the performance of an economy or an investment, a longer time horizon puts data into a better context. Let’s dig deeper into what year-over-year means and how it works.
What is YoY?
YoY (Year over Year) is a type of financial analysis used to compare time series data. Analysts can use YoY analysis to determine changes in the quantity or quality of certain business aspects. Investors in finance typically compare the performance of financial instruments year over year to determine whether or not an instrument is performing as expected. This analysis is also useful for determining growth patterns and trends.
Economic analysts also commonly use this approach when analyzing countries and their overall economic situation. For example, the YoY approach reveals that the Japanese GDP increased by 2% in 2016 compared to 2015, whereas analysts had previously predicted a 1.8% increase.
Understanding Year-Over-Year Growth
Year-over-year growth compares a company’s most recent financial performance to the same month a year ago. This is thought to be more insightful than a month-to-month comparison, which frequently reflects seasonal trends.
Annual, quarterly, and monthly performance are all common YOY comparisons.
What are the Benefits of YOY?
YOY measurements facilitate the cross-comparison of sets of data. For a company’s first-quarter revenue using YOY data, a financial analyst or an investor can compare years of first-quarter revenue data and quickly ascertain whether a company’s revenue is increasing or decreasing.
What Is YOY Used For?
YOY is used to compare one time period to another that is one year earlier. This enables an annualized comparison, for example, of third-quarter earnings this year versus third-quarter earnings the previous year.
It is commonly used to compare a company’s profit or revenue growth. Still, it can also be used to describe yearly changes in an economy’s money supply, GDP, and other economic measurements.
How Is YOY Calculated?
YOY calculations are straightforward and usually expressed in percentage terms. This would involve taking the current year’s value, dividing it by the prior year’s value, and subtracting one: (this year) ÷ (last year) – 1.
What’s the Difference Between YOY and YTD?
YOY looks at a 12-month change. Year-to-date (YTD) looks at a change relative to the beginning of the year (usually Jan. 1).
What If I Am Interested in Comparisons for Less Than a Year?
You can compute month-over-month or quarter-over-quarter (Q/Q) in the same way as YOY. Indeed, you can choose any time frame you desire.
Common YoY Financial Metrics
Here is a list of the most commonly used financial metrics for conducting a year-over-year comparison:
- Sales revenue – how much have sales increased or decreased year over year
- Cost of Goods Sold (COGS) – how well has the company been able to manage its gross margin
- Selling General & Administrative expense (SG&A) – how well have executives managed their corporate office expenses
- Earnings Before Interest Taxes Depreciation and Amortization (EBITDA) – a measure of operating profit and a proxy for cash flow
- Net Income – comparing the bottom line of the business over time
- Earnings Per Share (EPS) – looking at the bottom line on a per-share basis.
Common YoY Economic Indicators
Here is a list of the most commonly used metrics for conducting a year-over-year comparison:
- Inflation – what is the trend in inflation
- Unemployment rates – what is the workforce participation rate trend
- GDP – how much gross domestic product is a country producing
- Interest rates – are we in a rising or falling interest rate environment.
Alternatives to YoY Analysis
As an alternative to YoY analysis, an analyst may also want to look at other time-series data such as:
- Month-over-Month
- Quarter-over-Quarter
- Year-to-date
- Compound growth rates
YoY Analysis Pros and Cons
YoY Advantages:
- Easy to calculate
- It gives you an apples-to-apples comparison with the same period in the prior year.
- It makes it easier to spot trends.
YoY Disadvantages:
- It doesn’t account for all relevant factors, such as stability that comes at the expense of growth
Conclusion
In this article, we discussed Year over Year (YoY) analysis. YoY analysis is used to compare the results in one period, such as a month, with the same period in the previous year. The year-over-year analysis is useful because it eliminates any cyclicality or seasonality that occurs during the year.
