YOY stands for year-over-year. It is used to compare two or more measurable events on an annual/yearly basis. As the name year-over-year suggests, it is a method of comparison on a yearly basis. Suppose, you’re the sales manager of ABC Ltd. Now you want to compare annual sales of year ended 31st Dec 2020 with the previous year I.e. 31st December 2019, this practice is called yoy analysis as you are comparing sales for 2020 with the sales of 2019.
In this article, directory of finance will teach you the detailed definition, analysis, real world examples, calculation and difference from mom (month over month), QoQ (Quarter-over-Quarter) and YTD (Year-to-date).
Year-Over-Year is a method of comparison between two or more events on an annual or yearly basis. The conditions are:
The events should be measurable (like we cannot compare non-measurable events)
The analysis should be made on yearly basis. (Its not year-over-year if its not done on yearly basis).
What is YOY?
YOY and Year-over-Year are the same thing denoting a method of comparison. This comparison is most commonly used in finance/accounting world. It is most frequently used during the comparison of sales, operating expenses, distribution expenses, profit margins and margin percentage etc.
Year-Over-Year (YOY) Explained
This method was introduced to make the life of ‘user of financial statements’ easier. As you know, financial statements are very complex to understand for a common user. This is why different types of financial comparisons are used in the finance world. These comparisons make it easy to understand. Let me support my reasoning with a simple example:
- If I say, operating expenses for the month ended 31st December 2020 are $200,000.
- And If I say, operating expenses for month ended 31st Dec 2020 are $200,000 and for December 2019, these were $150,000.
Which of the above statements are more understandable to you? Let me tell the meaning of the both statements;
By first statement, I have no idea about whether this figure of $200,000 is good or not as I have no data of prior years. Hence, as an Investor I cannot decide about investing in the company as I don’t know of this is a good figure or not.
While, if I look at the second statement, I have more data to rely on. I can conclude that operating expenses for December 2020 has increased by almost 33.3% as compared to the same month of prior year.
Now, I can make an informed decision about investing in the company or not.
Note: Please note that this is just an example, a lot of other factors are also taken into consideration while deciding about investing in a company.
Benefits of Year-Over-Year (YOY)
- Such a financial comparison makes it easy to understand the complex figure of financial statements.
- Investors and Creditors can make more informed decisions about the financial statements when they have a clear view of what has happened or changed since last year.
- It makes the performance of the company easy to understand. You can easily tell if the performance is good or bad if you have prior years data with you.
- This analysis is useful to mitigate the factor of seasonality. By looking at the data of different years, quarters etc. one can differentiate between seasonal products and evergreen products.
Real world Examples of YOY
Starbucks: No of Stores YoY analysis
Following is the analysis of company operated stores of Starbucks for the year ended 29th September 2019.
|Country||No of Stores as of Sep 30, 2018 (A)||No of Stores as of Sep 30, 2019 (B)||YoY Change (B-A)|
How is YOY Calculated?
Its calculated in 3 easy steps:
- You’ll be given two figure i.e. figure for current period and figure for prior period. Subtract current period figure from prior period figure.
- Now divide the result by prior year figure.
- Multiply it by 100 if you want your result in percentages.
We have discussed this formula with examples in our coming sections.
YOY Growth Importance
Year over year growth compares the percentage changes for current period to past periods. This period can be any month or a Quarter. For example, suppose sales of ABC Ltd are $300,000 for December 2020 and these were $250,000 for December 2019. We can conclude that yoy growth is 20%. Wondering how to calculate this growth? no worries as we’ll see this in our next section.
Calculation of Growth is important as it make us understand the performance of a company better. Data is more understandable when changes or comparisons are made in percentages. The end goal is to make the life of potential investors, creditors, shareholders etc. easy. They can digest data easily if it is presented in more organized way.
How to calculate YOY Growth in Excel?
Formula for YOY Growth is as follows:
|Figure for event A =||X|
|Figure for event B=||Y|
|Change (B-A) =||Z|
|Y-O-Y growth||(Z/X) *100|
Where event A is any prior year period (December 2019 in our sales example)
Event B is current period (December 2020 in our sales example)
Let me calculate it for you for our sales example:
|Sales for event A (December 2019) =||$250,000|
|Figure for event B (Dec 2020) =||$300,000|
|Y-O-Y growth||($50,000/$250,000) *100|
Year over Year Analysis (YoY) Template
Download the Free YoY analysis Template. You’re allowed to use it anywhere it’s completely free! You can even use it for commercial purposes.
MoM stands for month over month, whilst y-o-y stands for year over year. Month over Month is another financial comparison used to compare measurable events at two different Months of the same period. Whilst year-over-year is comparison of two events at two different periods i.e. one of the current periods and one of the previous periods. For example, comparing sales for December of current year with sales for November of current year is MoM analysis. However, if we compare sales for December of current year with sales for December of previous year, it is what we call y-o-y analysis.
What is QoQ and YOY?
QoQ stands for Quarter over Quarter, whilst the latter one stands for year over year. Quarter over Quarter is another financial comparison used to compare measurable events at two quarters of the same period. Whilst year-over-year is comparison of two events at two different periods i.e. one of the current periods and one of the previous periods. For example, comparing sales for Quarter 4 of current year with sales for Quarter 3 of current year is QoQ analysis. However, if we compare sales transactions for Q4 of current year with sales for Q4 of previous year, it is what we call y-o-y analysis. Keep in mind that we cannot compare Quarter 3 of current year with Quarter 2 of previous year as it’ll not render fruitful results.
Is it year on year or year over year?
Its year over year which is used in financial comparisons. This term is widely used in accounting/finance to compare two measurable events at two different periods.
What is YOY and YTD?
YOY stands for year-over-year while YTD stands for year-to-date. YTD means the period starting from the first day of current year up-to the current date. For example, suppose its 31st August 2020, the period of time between the start of calendar year I.e. 1st January 2020 and current date i.e. 31st August 2020 is year-to-date or YTD.