What is Year-Over-Year (YOY)?
Year-Over-Year (YOY) is a financial comparison method used to evaluate changes in key metrics or performance indicators between two consecutive twelve-month periods. This comparison helps evaluate changes in performance or trends over time.
How to Calculate YOY Growth?
To calculate Year-Over-Year (YOY) growth:
YOY Growth (%) = [(Current Year Value − Previous Year Value)/Previous Year Value] × 100
Current Year Value: The metric's value in the most recent twelve-month period.
Previous Year Value: The metric's value in the preceding twelve-month period.
Benefits of YOY
- Identifying Trends: YOY comparisons help in identifying trends by showing how metrics change over a consistent time frame. This aids in understanding whether performance is improving, declining, or remaining stable.
- Seasonal Adjustments: YOY analysis can account for seasonal variations in performance. By comparing the same periods across different years, businesses can gauge performance objectively.
- Performance Evaluation: YOY comparisons provide a clear picture of performance over time, enabling businesses to evaluate strategies and make informed decisions for future planning.
- Investor Insight: YOY growth rates are crucial for investors assessing the financial health and growth potential of a company. Consistent YOY improvement indicates stability and growth prospects.
- Benchmarking: YOY analysis helps in benchmarking against industry standards or competitors, allowing businesses to gauge their relative performance and adjust strategies accordingly.