Year-over-year (YOY)

Page written by AI. Reviewed internally on July 5, 2024.

Definition

Year-over-year (YOY) is a financial metric used to compare a specific data point or performance measure in the current year to the same data point or measure in the previous year.

What is year-over-year?

YOY compares data from the same period in consecutive years. For example, comparing sales revenue for Q3 of this year to Q3 of the previous year. It’s a useful tool for analysing trends and evaluating the growth or decline of various aspects of a business or economic activity over a one-year period.

The YOY percentage change is calculated as follows:

YOY % change = ((current year data – previous year data) / previous year data) x 100

A positive YOY percentage indicates growth or an increase in the measured parameter compared to the previous year. Conversely, a negative YOY percentage indicates a decline or decrease.

YOY comparisons are commonly used in various business metrics, including sales revenue, profit margins, customer acquisition, website traffic, and more. It provides a way to assess the effectiveness of strategies and initiatives. Furthermore, it’s widely used in economic indicators, such as gross domestic product (GDP), employment figures, inflation rates, and consumer spending. It helps economists and policymakers understand the trajectory of economic growth.

Investors use YOY comparisons to evaluate the performance of stocks and other investments. Positive YOY growth in metrics like earnings per share (EPS) or revenue can be a positive signal for investors.

By examining YOY data over multiple years, businesses can identify long-term trends and patterns. This can be valuable for strategic planning and decision-making.

Similar metrics to year-over-year

Similar metrics to year-over-year comparisons include:

Quarter-over-quarter (QoQ): Compares performance or metrics from one quarter to the previous quarter, useful for identifying short-term trends and seasonality.
Month-over-month (MoM): Compares data from one month to the previous month, helpful for tracking monthly changes and patterns.
Year-to-date (YTD): Compares data from the beginning of the current year to the present date, providing a cumulative view of performance over the year.
Week-over-week (WoW): Compares data from one week to the previous week, useful for understanding weekly fluctuations and trends.

Limitations of year-over-year

Year-over-year comparisons offer valuable insights into long-term trends but have limitations. They can be distorted by seasonal fluctuations and may not capture short-term changes or sudden shifts in market conditions. Significant year-over-year changes, such as mergers or market disruptions, can also affect the accuracy of comparisons.

To address these limitations, it’s beneficial to supplement year-over-year analysis with other metrics like quarter-over-quarter or month-over-month comparisons. This approach provides a more comprehensive understanding of performance dynamics across various timeframes and helps reduce the risk of overlooking important short-term trends.

Example of year-over-year

ABC Corporation, a retail chain, analyses its sales data for the month of June. They find that their sales for June 2023 were £500,000. They then compare this figure to their sales for June 2022, which were £450,000.

To calculate the year-over-year (YoY) change in sales, they use the formula from above:

This means that ABC Corporation’s sales for June 2023 increased by approximately 11.11% compared to June 2022.