Definition | Examples | Formula | Calculation |“Good” YOY Growth | Benefits

You can’t be in the world of business, finance, or investing and not hear the term “year-over-year” (YoY) at least once a day.

But do you 100% understand what exactly it means and how to use it to your best advantage?

Keep reading to reveal the most important and useful aspects of YoY growth, including:

Definition: WHAT Is Year-Over-Year Growth?

For instance, you would compare the first quarter of 2021 with the first quarter of 2020, because they share the same period length.

YOY can be positive, negative or zero – indicating increasing, decreasing or stagnating trend in the measured statistic.

Formula: HOW is Year-Over-Year Growth Calculated?

Good news, YOY is very easy to calculate!

Formula for Calculating Year-over-Year Growth (YOY)

Or you can use these alternatives of the formula that are even more simplified:

  • YOY = (Present – Past) / Past
  • YOY = (New Number – Old Number) / Old Number

Calculation Example of Year-Over-Year Growth (YOY)

The YOY calculation is simple and takes 4 easy steps:

YoY Calculation in 4 Steps Example
Step 1
Select the two data points you want to evaluate–one for the period you are examining, and another recorded 12 months prior. This year’s Q4 (= 4th quarter) revenue: $150,000
Last year’s Q4 revenue: $100,000
Step 2
Subtract the old number from the new number. That gives you the difference for the year. Positive change indicates a year-over-year increase–and vice versa. On a YOY basis, revenues increased by $50,000 ($150,000 – $100,000 = $50,000) for the fourth quarter this year.
Step 3
Divide the difference from Step 2 by the old number. That gives you the YOY growth rate as a decimal. That's $50,000 divided by $100,000 paintings: ($50,000 / $100,000 = 0.5)
Step 4
Multiply the YOY growth rate decimal number from Step 3 by 100 (= move the decimal point over 2 places to the right) to convert it into percentage format and arrive at the year-over-year percentage change. (100 * 0.5) = 50% YOY Revenue Growth Rate
In Q4, the company achieved revenue growth of 50% ($150,000 – $100,000) / $100,000), compared to the same period last year–YoY. This is a positive sign indicating that the company is growing year-over-year.

Note: Depending on the requirements of the calculation, such as the level of precision needed, you can round the percentage to the near whole number or even keep working in decimals.

Examples (x3): HOW Is Year-Over-Year Growth Applied in Practice?

Here are some additional examples of how YOY is used in real-life:

• Example #1: Monthly

An analyst in an investment firm is comparing the key financial results–Revenue, EBITDA and Net Income–of a company for the month of June in years 2020 and 2021.

Example of YOY Year-Over-Year Growth Calculation for Monthly Financial Results

While the Revenues have increased by 25%, the EBITDA has shrunk by 10%.  This indicates that even though the company was able to attract more customers and/or generate higher volume sales, there were some operational inefficiencies or other issues affecting its profit margins. Nevertheless, the company has still managed to increase its net profit by 50%

• Example #2: Weekly

A retailer is comparing its online and high-street sales for the 31st week in years 2020 and 2021.

Example of YOY Year-Over-Year Growth Calculation for Weekly Retail Sales

The offline sales dropped by 20%, however, this decrease was balanced out by a 20% increase in online sales. Overall, the company sold 7% more units in Week #31 of year 2021 than the previous year.

• Example #3: Daily

An educational website is comparing its page views and online course sales on the 1st Monday of March 2021 against the same day in the previous year 2020.

Example of YOY Year-Over-Year Growth Calculation for Daily Website Statistics

Both the pageviews and sales have increased YOY by 20% and 50% respectively, resulting in an overall 25% YOY increase in conversion rate.

Top 5 Advantages: WHY Is Year-Over-Year Growth Important?

Unlike standalone quarterly/monthly/weekly metrics, YOY gives you a clearer picture of performance without seasonal effects, monthly volatility, and other factors.

 It also provides an objective view of the overall long-term performance.

Knowing your company’s year-over-year growth can be written proof that your company is succeeding and will continue to succeed. Calculating and showcasing your year-over-year growth can be beneficial for the following 5 reasons:

1. Seasonality

Arguably, the biggest advantage of year-over-year comparisons is that they minimize the effect of seasonality.

Many businesses operate on predictable seasonal cycles.

For instance, retailers experience peak demand during the holiday shopping season in the fourth quarter of the year (October to December).

In this case, the traditional “sequential” analysis that is designed to measure linear growth by comparing one month or quarter to the next (e.g., October 2022 vs November 2022; or Q4 2022 vs Q1 2023) would produce skewed results. And so would looking at the retailers’ financial metrics across one calendar year.

  • If we compared the retailers’ results in Q4 to Q3 in the same year, it might appear the company is undergoing unprecedented growth.
  • Similarly, a comparison of the Q4 to the following Q1 might indicate a dramatic decline when this could also be a result of seasonality.

Instead, year-over-year growth compares metrics to the same time period last year (e.g.; October 2022 vs October 2021; or Q4 2022 vs. Q4 2021) for a more accurate performance comparison that shows true growth/decline without the impact of seasonal extremes.

  • Back to our retail example, if you compare this year’s fourth-quarter sales to last year’s Q4 sales, you can see whether the retail businesses are actually growing or just temporarily benefiting from the seasonal sales cycle.

2. Comparability

Another advantage of the year-on-year metric is that it provides results in percentage terms, which are convenient for comparing companies of different sizes as part of market and competitor analysis.

3. Volatility

YOY calculation can also smooth out volatility throughout the year to compare the overall net results.

Similarly to seasonality, business performance can vary over the course of a year. As a result, sequential analysis could make a business appear unstable.

In contrast, year-over-year comparison of specific months or quarters can make the analysis look more reliable to stakeholders.

4. Long-term View

In addition to mitigating the issue of seasonality and volatility, YOY offers another benefit: long-term performance analysis.

As the name suggests, YOY helps measure long-term growth year to year, not just month to month.

Consequently, it allows us to recognize trends over time and provides insight into whether short-term goals are leading to long-term results.

5. Ease of Use

And last but not least, the year-over-year growth is a very easy metric to calculate, understand and use.

Users: WHO Benefits From Year-Over-Year Growth?

YOY is frequently used in financial analysis and data analytics to compare time series data in the world of business, finance and economics.

YoY in Business & Finance

In business and finance, YOY is a popular way for owners, shareholders, managers, investors, lenders, business partners and other stakeholders of a company to evaluate its performance, growth patterns and trends, including the following financial metrics:

  • Financial results, performance and health of a company (e.g., sales, revenue, profit margins, EBITDA, net income; ratios: liquidity / solvency / efficiency / profitability)

  • Investment performance and returns (e.g., financial instruments, investment portfolios, funds, stock market, EPS)

  • Key performance indicators (KPIs) that contribute to the bottom line of a business (e.g., shipping industry: number and speed of items delivered; healthcare industry: time and cost spent per patient; car dealerships: number of vehicles acquired and sold)

YoY in Economics

In economics, the economic situation of markets, countries and other entities are often analysed through the YOY lens.

  • Economic indicators (e.g., interest rates, inflation, (un)employment, GDP, CPI)

What Is a ”GOOD” Year-Over-Year Growth Rate?

Now that you have all the essential information about YOY, you might wonder:

What is the ideal year-over-year growth?

There is no one universal answer. What constitutes a good year-over-year growth rate is specific to each and every entity, depending on many factors, including:

  • Internal factors: goals, business type, product mix
  • External factors: industry, market, competition, economic environment

Alternatives to Year-Over-Year

As an alternative to YoY analysis, you may come across other time-series data measurements, such as:

YoY (Year-over-Year) Alternatives
Month-to-Date (MTD): Measures a certain metric from the beginning of the current month up until the current date, but excluding today’s date.
Quarter-to-Date (QTD): Measures a certain metric from the beginning of the current quarter up until the current date, but excluding today’s date.
Year-to-Date (YTD): Measures growth change of a certain metric from the beginning of the year, calendar or fiscal, until the present date.
Month-over-Month (MoM): Measures growth change of a certain metric by comparing the difference in its value between two consecutive months.
Quarter-over-Quarter (QoQ): Measures growth change of a certain metric by comparing the difference in its value between two consecutive quarters (i.e., three-month period).

In order to enable a comprehensive evaluation of an entity, the year-over-year growth analysis should be used in combination with other methods of analysis, including (but certainly not limited to) the annual, quarterly and monthly metrics.

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