Monthly Archives: September 2023

How to Calculate and Use Year-Over-Year YOY Growth

The formula to calculate Year-over-Year (YoY) is the current year’s value divided by the previous year’s value minus one. On that note, it would be inaccurate to assume that the current year was necessarily “worse” than the prior year without a deeper dive analysis. Furthermore, cyclical patterns become apparent if the analysis with historical results is inclusive of a minimum of one full economic cycle. This example comes from a financial modeling exercise where an analyst is comparing the number of units sold in Q to the number of units sold in Q3 2017. You can compute month-over-month or quarter-over-quarter (Q/Q) in much the same way as YOY. Year-to-date (YTD) looks at a change relative to the beginning of the year (usually Jan. 1).

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  2. A particularly strong month might be smoothed out when you’re only looking at yearly numbers.
  3. Year-over-year calculations are frequently used when discussing economic or financial data.
  4. The information contained in this article should not be construed as, and may not be used in connection with, an offer to sell, or a solicitation of an offer to buy or hold, an interest in any security or investment product.
  5. No level of diversification or asset allocation can ensure profits or guarantee against losses.
  6. In addition, another important consideration is that growth inevitably slows down eventually for all companies.

The year-over-year format is a crucial tool to evaluate the direction in which a company’s financial performance is trending. It shows just how much better or worse a company is doing in a certain metric compared to the same period of time. Let’s say your company wants to calculate its year-over-year revenue growth for the month of January. We’ll also assume that the business earned $50,000 in revenue this January while it earned $40,000 in the same month last year. However, in most cases, Year-Over-Year is used to measure financial performance for a particular year, quarter, or month. Year over year growth measures how well your business is doing this year compared to how well you were performing at the same time in the previous year.

Our team of reviewers are established professionals with decades of experience in areas of personal finance and hold many advanced degrees and certifications. According to our calculations, your Trading seasonalities in the futures market open company grew quarterly website traffic 20% year-over-year. If you have any questions about your reports, you can message your bookkeeper or set up a call for a more in-depth discussion.

Sales, profits, and other financial metrics change during different periods of the year because most lines of business have a peak season and a low demand season. For example, in the first quarter of 2021, the Coca-Cola corporation reported a 5% increase in net revenues over the first quarter of the previous year. By comparing the same months in different years, it is possible to draw accurate comparisons despite the seasonal nature of consumer behavior. Investors like to examine YOY performance to see how performance changes across time. Year-over-year (YOY)—sometimes referred to as year-on-year—is a frequently used financial comparison for looking at two or more measurable events on an annualized basis. Observing YOY performance allows for gauging if a company’s financial performance is improving, static, or worsening.

Common YOY Financial Metrics and Economic Indicators

YOY can also get used for any type of data, including financial metrics and economic indicators. There are several important financial comparisons that you can benefit from in business. Understanding where your financials stand and how they’re being used can offer valuable insights. For information pertaining to the registration status of 11 Financial, please contact the state securities regulators for those states in which 11 Financial maintains a registration filing.

Year Over Year Growth

It works by comparing data from a specific time period to the year prior. It’s useful information that allows you to see insights based on a whole year, not just weekly or monthly. It measures a company’s annualized data between two identical periods of time from back-to-back years, specifically looking at how that data has changed. With YoY calculations, you can be confident that the percentage changes you’re calculating are accurate, unbiased, and reflective of your company’s actual financial health.

Calculating YOY will provide you with actionable insights into the financial health of your business. There are many financial metrics and economic indicators that YOY calculations can evaluate. This is since these business types must disclose financial information to shareholders. Plus, investors use this information to better understand the financial health of a company.

How To Calculate YOY Growth

Our mission is to empower readers with the most factual and reliable financial information possible to help them make informed decisions for their individual needs. At Finance Strategists, we partner with financial experts to ensure the accuracy of our financial content. The most common application of Year-Over-Year data is called Year Over Year growth, or YOY growth. This would give you the percent change in GDP from 2022 to 2021, or the year-over-year growth in GDP. We’ll now move on to a modeling exercise, which you can access by filling out the form below. In addition, another important consideration is that growth inevitably slows down eventually for all companies.

Year-over-year (YOY) is a calculation that compares data from one time period to the year prior. Year-over-year calculations are frequently used when discussing economic or financial data. Viewing year-over-year data allows you to see how a particular variable grows or falls over an entire year rather than just weekly or monthly.

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This is considered more informative than a month-to-month comparison, which often reflects seasonal trends.. Month-over-month does the same thing but on a monthly basis and would determine your monthly growth rate. You can gain insights into whether or not financials are getting better, staying the same, or getting worse.

Having all of this information will allow you to make more informed business decisions. For instance, in retail businesses, fourth-quarter sales (October to December in the calendar year) are almost always stronger than first-quarter sales (from January to March). So most retail businesses will show a revenue increase from the first quarter of a year to the fourth quarter of the same year. But if you compare this year’s fourth-quarter sales to last year’s fourth-quarter sales, you can see whether the business is actually increasing in revenue or just benefiting from a normal seasonal sales increase.

Many companies see an uptick in sales in November and December for the holiday season. If a company reported a 35% increase in revenue in December, the data would provide less insight than a report showing that revenue increased 20% in the most recent December to December period. The latter period is a year-over-year measure that indicates revenue is growing on a yearly basis rather than just for the holiday season. The main benefit of YoY growth analysis is how easy it is to track and compare growth rates across several periods. If the growth metric is annualized, the adjustment removes the impact of monthly volatility.