Year-Over-Year (YOY) Definition

Year-Over-Year (YOY)

What Is Year-Over-Year (YOY)?

Year-Over-Year (YOY) is a common financial benchmark used to compare two or more quantifiable events on an annualized basis.

Looking at year-over-year performance helps you to see whether a company’s financial performance is increasing, staying stable, or decreasing. For example, in financial reports, you may read that a certain company’s revenue grew on a year-over-year basis over the third quarter for the past three years.

Important Takeaways

  • Year-over-year (YOY) is a way of comparing the outcomes of two or more measurable events from one period to those of a similar period on an annualized basis.
  • YOY comparisons are a common and effective technique to assess a company’s financial performance.
  • YOY reporting is used by investors to assess a company’s financial performance.
CFI’s Explanation of Year Over Year (YOY)

Learning Year-Over-Year

Year-over-year (also known as year-on-year) comparisons are a common and effective technique to assess a company’s and investments’ financial performance. Any quantifiable event that occurs on a yearly basis may be compared year over year. Annual, quarterly, and monthly performance are all common YOY comparisons.

Year-Over-Year Advantages

YOY measures make it easier to compare data sets. A financial analyst or investor may rapidly determine if a company’s revenue is rising or declining by comparing years of first-quarter revenue data for a company’s first-quarter revenue using YOY data.

For example, the Coca-Cola company reported a 5% rise in net sales in the first quarter of 2021 compared to the same period the previous year. Despite the cyclical nature of consumer activity, reliable comparisons may be drawn by comparing the same months in various years. This year-over-year comparison is also useful for investment portfolios. Investors want to look at year-to-year performance to see how it evolves over time.

Reasons for Year-Over-Year Growth

When examining a company’s performance, YOY comparisons are important because they help eliminate seasonality, a characteristic that may affect most firms. Because most lines of business have a peak season and a low demand season, sales, profitability, and other financial measures shift throughout the year.

Retailers, for example, have peak demand during the Christmas shopping season, which occurs in the fourth quarter of the year. It makes it logical to compare sales and earnings year over year to fully assess a company’s success.

It’s critical to compare one year’s fourth-quarter performance to previous years’ fourth-quarter performance. If an investor compares a retailer’s fourth-quarter earnings to the previous third-quarter data, it may seem like the firm is experiencing extraordinary growth when, in fact, the difference is due to seasonality.

Similarly, when comparing the fourth quarter to the next first quarter, there may seem to be a substantial decrease, but this might also be due to seasonality.

Real-Life IllustrationYOY is also distinct from the word “sequential,” which compares one quarter or month to the last and enables investors to observe linear progress. For example, the number of mobile phones sold by a technology business in the fourth quarter vs the third quarter, or the number of tickets filled by an airline in January versus December.

Real-Life Example

Kellogg Company posted mixed results for the fourth quarter of 2018, according to a 2019 NASDAQ report, indicating that its year-over-year profitability continues to drop, even as sales have climbed due to corporate acquisitions. Kellogg expects adjusted profits to fall by 5% to 7% in 2019 as it continues to invest in alternative channels and pack formats.

The business has also disclosed intentions to restructure its North America and Asia-Pacific regions, cutting numerous divisions from the former and restructuring the latter into Kellogg Asia, Middle East, and Africa. Despite lower year-over-year profitability, Kellogg’s stable presence and reaction to consumer consumption patterns indicate that the company’s overall future is positive.

What Is the Purpose of Year-Over-Year?

YOY is used to compare one time period to another that is one year earlier. This enables for an annualized comparison, such as third-quarter profits this year with third-quarter earnings last year. It is typically used to compare a company’s profit or revenue growth, and it may also be used to represent annual changes in an economy’s money supply, gross domestic product GDP, or other economic variables.

How Is Year-Over-Year Calculated?

YOY calculations are simple and are commonly stated in percentage terms. This entails taking the current year’s value, dividing it by the previous year’s value, and removing one: 1. (this year)/(last year)

What Is the Difference Between YOY and YTD?

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

What if I’m just looking for comparisons for a few months?

You may calculate month-over-month (MoM) or quarter-over-quarter (QoQ) in the same manner that you can compute YOY, and for any other interval, you like.

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Dom Lucre