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Year-over-Year

What Is Year-over-Year?

Also known as year-on-year, year-over-year (YoY) is a popular financial standard used for comparing two or multiple measurable events periodically, on an annual basis. This annual comparison can help a business gauge whether its finances are static, improving, or even exacerbating.

How To Calculate Year Over Year Growth

The year-over-year growth formula compares the current financial performance of a business with that of a previous year. Typically, this means gauging how the business grew in the current year, compared to the previous year.

Now that you understand What Is Year-over-Year, here is the formula to deduce it.

YoY (%) = Current period value/Previous period value – 1.

Benefits Of YoY

Most businesses can deduce year-over-year growth because the formula is relatively simple to use and interpret. This means that any stakeholder can understand the percentage results for a quick comparison or decision-making.

The benefits of YoY include:

  • Ideal for creating business strategies;
  • Its growth information can help in financing or loan processing;
  • Better insights into the performance of seasonal businesses.

How YoY Is Used

You already know how to deduce year over year growth. But how is this standard used in the business world? It enables business owners to make collations between two time periods that are a year apart. For instance, you can make an annual comparison between this year’s first-quarter earnings and last year’s earnings during the same period.

With this standard at hand, businesses can compare their growth rate in terms of profits or revenues accrued. Also it helps businesses highlight various changes in the economy that influence their growth in one way or another, such as GDP or money supply.

How To Interpret YoY Growth Analysis

Year-over-year growth solves the problem of monthly volatility by annualizing growth rate collations between current and past periods. On top of that, it shows cyclical patterns of how the economy affects business growth.

It will help if you understand how to interpret YoY growth analysis before making a definitive conclusion. A positive standard shows an increased growth while a negative standard shows a decreased growth.

Frequently Asked Questions About Year-over-Year

How to calculate YoY growth in excel?

Besides using the standard growth formula, you can deduce this standard for free in excel. You’ll need a ready-made online excel sheet that will need you to upload revenues and EBIT projections for varying forecast periods.

What is the purpose of a YoY growth analysis?

The purpose of this growth standard analysis is to gauge the performance of a business over a certain duration, in terms of profit or revenue generation. At its core, the standard compares revenue growth between a current and previous period.

What are some examples of insights that can be obtained from YoY analysis?

Some of the insights that can be obtained from this standard’s analysis include:

  • Revenues;
  • Profits;
  • Capital efficiency;
  • Capital solvency and liquidity;
  • Operational efficiency.

How might YoY analysis be misleading at times without proper context?

The analyses can be misleading if the person calculating the standard manipulates the axes or entries to show a desired or predetermined result.

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