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.<\/p>\n\n\n\n

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.<\/p>\n\n\n\n

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.<\/p>\n\n\n\n

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. <\/p>\n\n\n\n

<\/span>An example from real life<\/span><\/h2>\n\n\n\n

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.<\/p>\n\n\n\n

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.<\/p>\n\n\n\n

<\/span>YOY: What Is It Used For?<\/span><\/h2>\n\n\n\n

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.<\/p>\n\n\n\n

<\/span>YOY Calculation: How Does It Work?<\/span><\/h2>\n\n\n\n

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) \u00f7 (last year) – 1.<\/p>\n\n\n\n

<\/span>YOY vs YTD: What’s the Difference?<\/span><\/h2>\n\n\n\n

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).<\/p>\n\n\n\n

<\/span>In the case of comparisons lasting less than a year, what should I do?<\/span><\/h2>\n\n\n

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<\/figure><\/div>\n\n\n

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.<\/p>\n\n\n\n

Accounting and Finance Fundamentals<\/p>\n\n\n\n

<\/a>There are more than 183,000 video courses available online that you can choose from to help you understand corporate finance and accounting, regardless of your learning style. If you choose Udemy as your learning platform, you will be able to learn accounting terminology, how to prepare financial statements and how to analyze business transactions through business courses. As an added benefit, all of the courses come with a 30-day money-back guarantee and new additions are added every month to these courses. Sign up for a free trial of Udemy and find out more about what it has to offer.<\/p>\n","protected":false},"excerpt":{"rendered":"

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