Year over Year YoY analysis. Examples, measurement and seasonality

What is Year over Year or YOY

YOY stands for year-over-year. It is a standard financial metric used to measure a company's performance over time.

Year over year, or YoY, compares one year's run rate to another. YoY comparison is often used in business and investing to examine trends and track progress. While financial data can help detect patterns, beware of using too much data when analyzing YoY comparisons - more recent years are often more indicative of future performance.

For example, if you are looking at YoY sales data, you would be able to see whether sales have increased, decreased, or stayed the same compared to the previous year. For example, if a company's revenue was $100 million last year and $105 million this year, then the company's YoY revenue growth is 5%. This means the company's revenue has grown by 5% from last year to this year.

How do you measure YOY?

To calculate YOY, take the current year's estimate or actual value and divide it by the prior year's estimate or real value. The result will give you a percentage increase or decrease. Be sure to use like items when comparing - for example, don't compare this year's revenue to last year's profits. 

Here's an example.

Seasonality in YoY

Some businesses have natural fluctuations between the years that can impact YoY results. For example, chocolate retailers will typically see higher sales in November and December due to the holiday shopping season compared to March and April. As such, it's important to consider seasonality when interpreting YoU comparisons.

Comparing one year's fourth-quarter performance against other years' fourth-quarter performances is crucial. Suppose an investor compares a retailer's fourth-quarter earnings to those of the third-quarter prior. In that case, it can appear that the company is experiencing unheard-of growth when the difference in results is the product of seasonality. Similar to this, a substantial fall may emerge when comparing the fourth quarter with the first quarter that follows, but this could also be due to seasonality.

Commonly used metrics in accounting for YoY

• Sales Revenue
• Cost of Goods Sold
• EBITDA
• Gross Profit
• Depreciation
• Earning per share
• Net Profit
• Net Income
• Interest Rates
• Gross Domestic Product

Real-life examples of YoY

You will often read this in the headlines at the end of every financial reporting period. Some examples are

JK Tyre Q2 results: Net drops 41% YoY to Rs 65 crore. - The article highlights a report from JK Tyre & Industries that a 41 per cent decline in bottom line at 64.96 crore

HUL dips over 4% on Q2 results; net profit up 8% YoY in line with estimates - This article shows the drop in FMCG results for the second quarter of the year

What's the Difference Between YOY and YTD?

The main difference between YOY and YTD is that YOY represents growth over the previous year, while YTD represents growth since the beginning of the year. So, if you're looking at a company's stock price, for example, YOY would compare the current price to the price a year ago, while YTD would compare the current price to the price at the beginning of the year. 

YTD is often used in financial reporting to show how a company has performed over the course of a fiscal year. It's a helpful metric for investors and analysts to consider when making decisions about whether to buy, sell, or hold a particular stock. 

For example, if a company's sales increased from $100 million last year to $105 million this year, its year-over-year growth rate would be 5%. The term is often used in contrast to month-to-month or quarter-to-quarter changes. 

Year-to-date (YTD) refers to the period beginning January 1 of the current calendar Year up To the present day. For example, if today is July 1, YTD refers to all transactions and activities that have taken place this calendar year.

How is YoY different from MoM

Month on month (MoM) is a comparison of two consecutive months. In business, MoM comparisons can be used to track performance indicators such as sales volume, website traffic, or new customers. This type of analysis can help identify trends and patterns that may not be immediately apparent when looking at data over a more extended period. 

To calculate MoM, compare two months' worth of data side-by-side. For example, if you're looking at sales figures, you would compare this year's January sales to last year's January sales. From there, you can express the MoM change as a percentage. 

Some businesses track other types of data MoM to gauge their progress and performance. This could include everything from employee satisfaction scores to social media engagement metrics.

Conclusion:

Year-over-year (YoY) is a standard financial performance metric used to measure a company’s performance over time. It compares one year’s run rate to another, and can be used in business and investing to examine trends and track progress. While historical data can help detect patterns, beware of using too much data when analyzing YoY comparisons - more recent years are often more indicative of future performance. If you're curious about learning more about accounting or IFRS, our team has you covered. Check out our blogs on the basics of these topics to gain a deeper understanding.