YOY – sometimes known as year-on-year – is a financial comparison which is often used to compare the performance of two or more measurable events over the course of an entire year. By observing a company’s YOY performance, you are able to gauge if their financial performance is improving, remaining static, or worsening over the course of the year. It’s quite common to find in financial reports that a particular business has reported its revenues have increased for the third quarter on a YOY basis, for the last three years, on a YOY basis.

KEY OUTCOMES

  • A year-over-year comparison (YOY) is a method for evaluating the results of two or more measured events over different periods of time in order to compare the results of one period with those of a comparable period on an annualized basis.
  • In order to evaluate the financial performance of a company, YOY comparisons are one of the most popular and effective methods of doing so.
  • A YOY report is used by investors as part of their evaluation of a company’s financial performance.

What is YOY?

Comparisons of YOY performance are popular and effective means of evaluating both the financial performance of a company and the performance of investments in comparison to last year. On a YOY basis, any measurable event that occurs on a regular basis can be compared to the previous year’s event. Comparisons of YOY performance are commonly made on an annual, quarterly, or monthly basis.

The benefits of YOY

In order to facilitate cross-comparisons of sets of data, YOY measurements can be used. By using YOY data for a company’s first-quarter revenue, a financial analyst or investor can compare years of first-quarter revenue data from a company to quickly ensure whether the revenue of that company has increased or decreased in the past quarter.

Coca-Cola corporation, for example, reported a 5% rise in net revenues in the first quarter of 2021 compared to the same period the previous year, based on a comparison with the previous year’s first quarter. Despite the seasonal nature of consumer behavior, it is possible to carry out accurate comparisons between the same months in different years by comparing the same months in those years. There is also value in comparing YOY performance between investment portfolios based on this YOY comparison. It is important for investors to take a look at the year-over-year performance to see how performance has changed over time as well.

YOY Reasons

When it comes to analyzing a company’s performance, YOY comparisons are commonly used since they help mitigate seasonality, which is a factor that can have a significant impact on most companies’ performance. Due to the fact that most lines of business have a peak and a low demand season during various times of the year, sales, profits, and other financial metrics change during different phases of the year.

For instance, retailers have a peak season during the holiday shopping season, which falls in the fourth quarter of each year, when demand for their products peaks. A comparison of the company’s revenue and profits from year to year is a good way to quantify a company’s performance in terms of its performance.

I think it’s very important to compare how a company performs during the fourth quarter of any given year with how it performs during the fourth quarter of another year. In an investor’s eyes, if a retailer’s results in the fourth quarter are compared to those in the prior third quarter, it might appear that the company is experiencing unprecedented growth when the difference in the results can be attributed to seasonality. Additionally, one might notice a dramatic decline in sales in relation to the fourth quarter of the previous year in comparison to the first quarter of the following year, when seasonality might also be at play here.

A YOY measurement also differs from a sequential one, which measures a quarter or month to the previous one, allowing investors to see linear growth. A tech company might measure sales of cell phones in the fourth quarter compared to the third quarter, or an airline might measure seats filled in January compared to December. 

An example from real life

Kellogg Company has released mixed results for the fourth quarter of 2018, revealing in its NASDAQ report that despite sales increasing following corporate acquisitions, Kellogg Company’s YOY earnings continued to decline for the quarter. According to Kellogg’s prognosis, adjusted earnings will drop by another 5% to 7% in 2019 as the company continues to invest in alternative channels and packaging formats in an effort to expand its market share.

In addition, Kellogg has announced plans to reorganize its North America and Asia-Pacific markets, removing several divisions that were part of the former and reorganizing the latter into Kellogg Asia, Middle East, and Africa. Even though Kellogg’s total earnings decreased YOY, Kellogg’s presence and responsiveness to consumer consumption trends ensured that the company’s overall outlook remained favorable despite the company’s declining YOY earnings.

YOY: What Is It Used For?

As the name implies, YOY is a measure of comparison that can be used to compare one period of time to another that is one year earlier. Using this method, we can compare earnings from the third quarter of this year with those from the third quarter of the previous year on an annualized basis. In economic terms, it is commonly used as a means to compare changes made to the profits and revenues of a company in a given year as well as to explain yearly changes in the money supply, gross domestic product, or the general state of the economy.

YOY Calculation: How Does It Work?

As far as YOY calculations are concerned, they are straightforward and are usually expressed as percentages. If you wanted to do this, you would have to take the current year’s value and divide it by the prior year’s value and subtract one: (this year) ÷ (last year) – 1.

YOY vs YTD: What’s the Difference?

When it comes to YOY, we look at the change over a period of 12 months. An individual’s year-to-date (YTD) goal is to determine how much has changed since the beginning of the year (usually the first of January).

In the case of comparisons lasting less than a year, what should I do?

In the same way that YOY can be calculated, you can do the same with month-over-month (M/M) and quarter-over-quarter (Q/Q). As a matter of fact, you have a wide range of time frame options at your disposal.

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