Year-Over-Year (YOY): What Is It？
Year-over-year (YOY), also known as year-on-year, is a popular financial comparison used to compare two or more quantifiable events over a year.YOY performance may be used to determine if a company's financial performance is increasing, stable, or decreasing. For example, you may read in financial reports that a certain company's sales grew on a year-over-year basis in the third quarter for the past three years.
Important Takeaways
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Year-over-year (YOY) is a way of comparing the outcomes of two or more measurable events from one period to those of a similar period on an annualized basis.
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YOY comparisons are a common and effective technique to assess a company's financial performance.
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YOY reporting is used by investors to assess a company's financial performance.
Recognizing YoY
YOY comparisons are a common and effective way to assess a company's and its investors' financial performance. Any quantifiable event that occurs every year may be compared year over year. Annual, quarterly, and monthly performance are all common YOY comparisons.
YoY Advantages
YOY measures make it easier to compare data sets. By comparing the company's first-quarter revenue from last year to the company's first-quarter revenue from last year, a financial analyst or investor can quickly fIGure out whether the company's revenue is rising or going down.
For example, the Coca-Cola company reported a 5% rise in net sales in the first quarter of 2021 compared to the same period the previous year. Despite the cyclical nature of consumer activity, reliable comparisons may be drawn by comparing the same months in various years. This year-over-year comparison is also useful for investment portfolios. Investors want to look at year-to-year performance to see how it evolves.
Reasons for Year-on-Year ComparisonsYOY comparisons are important for examining a company's performance because they help minimize seasonality, which may affect most organizations. Because most lines of business have a peak season and a low demand season, sales, profitability, and other financial measures shift throughout the year.
Retailers, for example, have peak demand during the Christmas shopping season, which occurs in the fourth quarter of the year. To correctly assess a company's success, compare sales and earnings year over year.
It's critical to compare one year's fourth-quarter performance to previous years' fourth-quarter performances. If an investor compares a retailer's fourth-quarter earnings to the previous third-quarter data, it may seem like the firm is experiencing extraordinary growth when, in fact, the difference is due to seasonality. In the same way, there may be a bIG drop in the fourth quarter compared to the first quarter of next year. This could be because of the way the seasons work.
YOY is also distinct from sequential, which compares one quarter or month to the preceding one and enables investors to monitor linear progress. For example, the number of mobile phones sold by a technology business in the fourth quarter versus the third quarter, or the number of tickets filled by an airline in January versus December.
Real-Life Illustration
In a 2019 NASDAQ report, Kellogg Company revealed mixed results for the fourth quarter of 2018, disclosing that its YOY profitability continued to drop, even as sales climbed due to corporate acquisitions. New channels and new pack designs are going to keep Kellogg's from making more money. In 2019, the company expects its adjusted profits to fall by another 5% to 7%.
In addition, the business announced plans to restructure its North America and Asia-Pacific regions, cutting numerous divisions from the former and restructuring the latter into Kellogg Asia, Middle East, and Africa. Kellogg's overall outlook was still positive, even though the company made less money this year than last year. This is because the company has a strong presence and responds to changes in consumer consumption patterns.
What Is the Purpose of YOY？
YOY is used to compare one time period to another that is one year earlier. This enables an annualized comparison, for example, of third-quarter profits this year to third-quarter earnings the previous year. It is typically used to compare a company's profit or revenue growth, and it may also be used to represent annual changes in an economy's money supply, GDP, and other economic variables.
How Is Year-On-Year Calculated？
YOY calculations are simple and are often stated in percentage terms. This entails taking the current year's value, dividing it by the previous year's value, and removing minus one. Formalized paraphrase (this year) (the previous year)
What Is the Distinction Between YOY and YTD？
YOY considers a 12-month change. Year to date (YTD) considers a change since the beginning of the year (usually Jan. 1).
What if I'm just interested in comparisons for a year or two？
Month-over-month (M/M) and quarter-over-quarter (Q/Q) may be calculated similarly to YOY. You may, indeed, choose whatever period you like.
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