Year-over-year or YOY is a financial analysis tool that helps in analysing time series data. This enables analysts to deduce the changes in the business aspect over a time period. This can help businesses understand if the performance was as expected or not. Moreover, it helps in analyzing patterns and trends of growth or loss.
This approach also helps to analyze the country’s overall economic situation. For instance: This approach deduced that the Japanese GDP rose by 2% in 2016 when compared to the previous year.
Benefits of Year-Over-Year (YOY)
Year Over Year has been instrumental in measuring and comparing cross-data sets. This helps investors compare if the revenue is increasing or decreasing. It is one of the important data for the investment portfolio. Investors look at the performance to understand how the growth or performance has changed over time.
It helps in understanding the company’s seasonality. Seasonality is a factor that reflects how sales, profit, and other financial metrics change over a period of the year. This is important to look at because every business has a peak season and a low-demand season. YoY can also help you compare the fourth-quarter performance of the previous year to the other year.
Common YoY Financial Metrics
Year Over Year or YOY uses various metrics to conduct financial comparisons. Some of the common ones are:
- Sales revenue – Sales Revenue metrics measure the growth or decline in sales.
- Cost of Goods Sold (COGS) – This is one of the most important metrics that analyses the management of gross margin.
- Selling General & Administrative Expenses (SG&A) – This is another metric that analyzes the management expenses involved in a corporate office.
- Earnings Before Interest Taxes Depreciation and Amortization (EBITDA) – This YOY metric studies the profit and proxy that is operated for cash flow.
- Net Income – This analyses and studies the net income of any company.
- Earnings Per Share (EPS) – This metric looks at the net income on a per-share basis.
Apart from this, one should consider some economic indicators while conducting the financial analysis. Some of the common economic indicators are:
- Inflation
- Unemployment rates
- GDP
- Interest rates
How Is YOY Calculated?
Calculating YOY is very easy. It is mostly represented in terms of percentage. Let’s look at the formula:-
(This Year – Last Year)
_______________________ X 100
Last Year
Example of Year-Over-Year (YOY)
The concept of Year Over Year is very simple. However, looking at examples can help you understand better.
Example: Apple’s Sales and Income
Net Sales Comparison
Q2 2024 Sales: $90.8 billion
Q2 2023 Sales: $94.8 billion
YOY Calculation:
($90.8 billion – $94.8 billion)
_______________________ X 100 = -4.3%
$94.8 billion
Apple’s net sales decreased by 4.3% from Q2 2023 to Q2 2024.
Alternatives to YoY Analysis
There are many other ways companies use to analyze the over-time data. Some of the alternatives to Year over Year are:
- Month over Month
- Quarter over Quarter
- Year to date
- Compound growth rates
Difference Between YOY and YTD?
Year-to-date (YTD) and Year over Year can confuse many beginner financial analysts. However, both of them are different. Year over Yea is a comparison between the two-year data. While Year to date provides running data or change that is calculated from the beginning of the year that is 1st January.
Final Line
Year over year is an important comparison tool used for Financial analysis. It is helpful for investors, analysts, and corporations. You can compare the figures from one point in the present year to the same point in the prior year. This enables you to get a clear picture of your performance.
Companies can use it to see if their operations are supporting growth or showing a falling graph. If it is showing a negative picture companies must change their strategies.
Also Read: Best Long-Term Stocks To Invest Now For Future Growth