Year Over Year (YOY)

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rjonesx
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What does ‘Year Over Year – YOY’ mean

When comparing the results of two or more measurable events from one time period to those from a comparable time period on an annualized basis, this is referred to as year over year (YOY) comparison or year over year comparison. The year-over-year performance of a firm is widely used by investors to determine if the financial performance of the company is increasing or deteriorating.

Consider the following examples: a company may report that its revenues increased for the third quarter on an annualized basis for the previous three years; or a mutual fund that returned 50 percent last year may have an average annualized return of 12 percent, which takes into account each annual return since the fund’s inception.

Explaining ‘Year Over Year – YOY’

Year-over-year comparisons are a common and successful method of evaluating the financial performance of a firm as well as the performance of investment funds. Any quantifiable event that occurs on a yearly basis may be compared on a year-over-year basis. Annual, quarterly, and monthly performance are all examples of year-over-year comparisons.

Benefits

The use of year-over-year measures makes it easier to compare different sets of data. A financial analyst or investor may easily determine if a company’s first-quarter sales is rising or declining by comparing year-over-year statistics for the company’s first-quarter revenue.

For example, Barrick Gold Corporation recorded earnings of $1.93 billion in the first quarter of 2016, while the business reported revenues of $2.25 billion, representing an increase of 12% year on year. This demonstrates that Barrick Gold’s revenue has fallen when compared to comparable yearly periods. This year-over-year comparison is also useful for evaluating investment portfolios. Investors are interested in year-to-year performance because it allows them to understand how performance evolves over time.

Reasoning

When evaluating a company’s performance, year-over-year comparisons are common because they assist to counteract seasonality, which is a feature that may affect the success of most firms. Sales, profitability, and other financial indicators fluctuate throughout the year as a result of the fact that most lines of business have peak and low demand seasons in different parts of the year.

Retailers, for example, experience a spike in demand during the Christmas shopping season, which occurs in the fourth quarter of the calendar year. It makes logical to compare sales and earnings from year to year in order to appropriately assess a company’s performance and success. The performance of a company’s fourth quarter in one year should be compared to the performance of the same company in other years.

If an investor compares a retailer’s earnings in the fourth quarter to those in the previous third quarter, it may appear like the firm is experiencing exceptional growth when, in fact, seasonality is playing a role in the difference between the two quarters’ results. Similarly, if the fourth quarter of a year is compared to the first quarter of the following year, it appears that the firm has seen a significant fall, even if this might be due to seasonality.

‘Year Over Year – YOY’ FAQ

Is year-over-year at the same as last year?

Comparing one period with the same time in the prior year is referred to as year-over-year (YOY) comparison (s). YOY growth compares how much you've grown in the most recent period to how much you've grown in the previous time (s). The time span is usually one month or one quarter (e.g., fourth quarter of 2020 compared to fourth quarter of 2019).

What is a good year over year growth?

On the whole, however, a healthy growth rate should be able to be maintained over the long term. The optimal yearly growth rate will be between 15 and 25 percent in the vast majority of situations. Increasing the rate above that may put new enterprises at risk of being unable to keep up with the rapid development.

What is the formula for growth over last year?

Subtract the earnings from the current year from the earnings from the prior year to arrive at the result. Then take the difference between the two years' profits and divide it by the prior year's earnings, and multiply the result by 100. It will be stated as a percentage, which will reflect the increase in the product over the previous year.

Further Reading

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