Year-over-year, often referred to as YOY or YoY is a metric used to compare data from the current year vs. the previous year. Using YoY analysis, finance professionals can compare the performance of key financial metrics such as revenues, expenses, and profit. This helps analysts spot growth trends and patterns needed to make strategic business decisions.
Formula
The formula to calculate Year-over-Year (YoY) is the current year’s value divided by the previous year’s value minus one.
For example, if revenue went from $10 million in Year 1 to $14 million in year 2, the calculation would be:
- YoY Revenue Growth = ($14 million / $10 million) – 1 = 0.4 or 40%
Year-Over-Year (YoY) Analysis Example on Microsoft Excel
Suppose the company you’re analyzing has revenues, expenses, and profit figures for 2022 and 2023. With this information, we can calculate the YoY percentage change by taking the 2023 data, dividing it by the 2022 data, and subtracting by one. In the case of revenue, it would be:
- YoY Revenue = (38,050 / 33,087) – 1 = 15.0%
Understanding this data can help the management team make important decisions on budgeting, fundraising, and capital allocation. In this case, the company had a 15.0% YoY increase in revenues and a 46.3% increase in YoY profit, which suggests the company’s performance was positive and may justify increased spending on hiring, marketing, and more.
Common Uses of Year-over-Year (YoY)
Year-over-Year (YoY) is used by business and finance professionals including investors, managers, lenders, and more. Below is a list of common use cases of the metric:
- Revenue: how much revenue increased or decreased over a year.
- Profit: how much profit (also known as net income) increased or decreased over a year.
- Inflation: how much inflation (the price change in general goods and services) increased or decreased over a year.
- KPIs (Key Performance Indicators): how the key business drivers have increased or decreased over a year. Common KPIs include number of users, speed of delivery, and quantity sold. Please note that KPIs vary by industry and company size.
Similar Metrics to Year-over-Year (YoY)
Alongside the YoY, analysts may also use similar metrics with different time frames such as:
- Quarter-over-Quarter (QoQ): The change between the current quarter and the previous quarter for the same data. This is commonly used in quarterly financial reports required by the SEC (Securities Exchange Commission) for publicly traded companies.
- Month-over-Month (MoM): The change between the current month and the previous month for the same data. This is commonly used in a company's internal financial reports, as it provides more datapoints than QoQ or YoY analysis.
- Week-over-Week (WoW): The change between the current week and the previous week for the same data. This is uncommon for most mature businesses due to the short time frame. However, startups and other high-growth companies often use this metric to track user growth, revenue growth, and margin growth.
- Year-To-Date (YTD): The change between the beginning of the year (1st of January) and the current date. This is common in financial statements to see the total number to date. Unlike YoY which looks at the change for 12 months, YTD looks at the change from the start of the year to the current date.
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Limitations of Year-over-Year (YoY)
While Year-over-Year (YoY) is a useful metric, it does have some limitations. Compared to metrics such as Month-over-Month (MoM), it provides significantly less data points. As a result, important trends can be missed by decision makers.
For example, seasonality (how certain seasons affect revenues) is not accounted for in a YoY analysis. Businesses located in holiday destinations such as ski resorts, hotels, and restaurants suffer from high seasonality, which should be accounted for in financial reports. Knowing this information can lead to significant cost savings by shutting down operations in the off-season.
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Introduction
Building a cash flow statement from scratch using a company income statement and balance sheet is one of the most fundamental finance exercises commonly used to test interns and full-time professionals at elite level finance firms.
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