Year-over-Year(YOY) is a financial metric used to analyze how a business is performing and showing its percentage change on a yearly basis.
If you are a financial analyst, an economist, board members of a company, An Investor or a business owner. It is very important for you to have an understanding of Year-over-year.
This tool will give you insights into the company’s growth.
Just because it is Year-over-Year, does not imply it is only calculated only on a yearly basis. It can compare an event repeating monthly, quarterly, and annually. To summarize
Let us Assume we have an e-commerce business and the sales of the product are not constant throughout the year, rather we generate more sales and revenues during JANUARY-MARCH.
So if we want to calculate YOY here, we need to compare this year’s quarterly sales with the previous year’s quarterly sales(JANUARY-MARCH) and find out our YOY change.
How to calculate YOY?
To calculate year-over-year or YOY change we need data of two measurable events, here
Let us continue with the same example above, Given data of sales and revenues of two-quarters of two different years are-
| YOY = (CURRENT DATA – PREVIOUS DATA) / PREVIOUS DATA
SALES YOY = (23000 – 17000) / 17000 = 0.35
% YOY = 35%
REVENUE YOY = (1900000 – 1700000)/1700000=0.11 %YOY =11 %
Other substitutes of YOY.
- Quarter-over-Quarter(QOQ) = tells the performance change on a quarterly basis.
- Monthly-over-Monthly(MOM)= tells the performance change on a monthly basis.
- Year-to-date = performance change from the first day of the fiscal year beginning to the current date.
- CAGR (compound annual growth rate) = Investment yield (rate of returns) over the period of time.
Advantages of YOY (Year-Over-Year):
Since we have discussed earlier it is one among key indicators to map about the performance of a company telling at what growth rate a company is growing- it can be positive or negative. Also
- It helps us a simple calculation for any person to analyze.
- Results are formatted in percentage and easily comparable.
- Helps financial analysts to map and draw measurable conclusions.
Also helpful in calculating these parameters:
Interest rates: this indicator is also helpful for banks and such institutions to track the fluctuations of the interest rates and analyze the historical data and helps to draw further conclusions.
GDP: The Gross Domestic Product is the metric to determine the value of the economic activity of a country. More the GDP, the better can the economy of a nation. year over year change gives the growth rate of the economy.
Top 5 GDP nation in the world-(2020)
- USA – $21.44 trillion
- China – $14.14 trillion
- Japan – $5.15 trillion
- Germany – $3.86 trillion
- India – $2.94 trillion
Inflation rates: Basically Inflation means an annual incremental change in the general price of goods and services in an economy. On the better side, neither too high nor too low inflation side is good for any country, somewhere constant is always better.
Balance of payment(BOP): It is a statement sheet of all the transactions made between a nation and the rest of the world, combined export and import records of a country. More export, less import is better BOP.
Literacy rates: we can calculate percentage changes in literacy rates from the past years which is another economic indicator.
Unemployment rates: Unemployment rates of any nation should decrease with time, as it shows the healthy development of an economy.
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