Year-over-year or year-on-year (YOY) is a comparison term you have seen everywhere. It is used to compare two annual figures and is most commonly used in financial data sets.

YOY analyses are common for economic, business, and investment analyses. It is a simple term and can be calculated easily for any type of data.

Let us discuss what is YoY, how it is calculated, and what are its pros and cons.

## What is Year-Over-Year (YOY)?

Year-over-Year or YOY is an analysis metric that is used to compare figures from two consecutive years.

It is commonly used in financial performance comparisons. It can be used for comparing two measurable events on annualized terms.

YOY is widely used in time series analysis to compare quantitative and qualitative metrics. It helps analysts to analyze the performance of an entity, an investment, or a project.

Year-over-Year can be used for several different types of performance metrics including financial and economic performance indicators. It is used by private entities, government institutes, and individuals alike.

## How Does YOY Work?

YOY is a simple comparison metric that can be used for any measurable event for any type of entity.

For example, a business can use YOY to analyze sales growth. The business would take the previous year’s sales figures and compare them with the current year’s figures on a percentage term.

It will then give an idea of the business as if the sales have grown, declined, or remained static for the current as compared to the previous year.

Another common use of YOY analysis for investors. Investors compare ROIs and other metrics by comparing the previous and current years’ figures.

Government entities and economists also analyze the economic growth indicators on a YOY basis.

For example, economic analysts use the inflation rate, unemployment rate, and GDP rate to describe the YOY change.

A positive integer of YOY indicates an increase in the measured event’s performance. A negative YOY integer means a decrease in the trend.

In this way, YOY gives static data a meaningful method for trend analysis. Analysts can use YOY figures for several years and set a trend for better comparisons.

For example, economic analysts can use YOY figures for the last five years for the GDP growth of a country to establish an increasing, declining, or static trend.

Similarly, investors can use this metric to create stock performance trends for several years.

YOY trends can be used for the data available for less than a year as well. In this situation, the analyst must convert these figures into annualized figures and use them in the YOY analysis.

## How to Calculate YOY?

The calculation of YOY simply requires two annual figures. These figures can be used for any type of financial data.

**YoY% = (This Year’s Figure – Last Year’s Figure)/Last Year’s Figure**

We can use a few simple steps to calculate any YOY percentage.

**STEP 01:**

The first step is to take the previous year’s figure. For instance, an accountant wants to analyze the gross profit margin for two years.

Similarly, you can use any figure for which you want a comparison. The last or previous year’s figure then acts as the base number.

**STEP 02:**

The second step is to simply take the current year’s figures for the same metric.

**STEP 03:**

The third step is to deduct the current year’s figure from the last year’s figure.

**STEP 04:**

The final step is to divide the result of step 3 by the last year’s figure. The result will be your year-over-year figure for the measurable event.

The YOY is a percentage term and it can positive or negative.

## Example

Suppose a company ABC sold 335 units of its main product P1 in the previous year and 445 for the current year. Its revenue from product P1 remained at $ 16,750 at $50 per unit.

ABC company decided to decrease the price of P1 to $45 to encourage more sales. The sales for P1 for the current year remained at $ 20,025.

Let us calculate the YOY change in unit sales and revenue for ABC company.

YOY Unit Sales = (Current year’s unit sales – last year’s unit sales)/Last year’s unit sales

**YOY Unit Sales = (445-335)/335 = 32.83% Increase**

YOY Revenue = (Current year’s revenue– last year’s revenue)/Last year’s revenue

**YOY Revenue = (20,025 – 16,750)/16,750 = 19.55% Increase**

## Why You Should Use YOY?

One of the most common reasons to use YOY analysis is to eliminate the seasonality effects for a business. YOY helps compare the performance of a business in annualized terms rather than on a seasonal basis.

It does not imply that businesses can only compare annual figures with YOY analysis. Businesses can compare quarterly or monthly performance metrics by using the YOY analysis.

For example, a business can compare the sales figures of the first or third quarter of two years through YOY analysis.

Investors can use the same approach to analyze stock performances. Seasonality would impact the profits and hence the stock prices of cyclic businesses as well.

Therefore, YOY analysis gives you a level playing field and makes comparisons more sensible for performance comparisons.

As mentioned earlier, YOY converts static data into useful information for setting trend analysis. Businesses and economies can use these percentage terms to make better decisions and plan accordingly.

## Uses of YOY in Different Areas

Year-over-year is a simple comparison metric that can be calculated for any two sets of data available. It can be used to compare two measurable events on annualized terms.

Here are a few common examples of YOY uses in practice.

**For Businesses:**

- Revenue: Comparison of sales figures with the previous year.
- COGS: It compares the cost of goods sold to produce the primary products of a business.
- Profit Margins: YOY change in profit margins for the business.
- Expenses: Measuring the change in direct and indirect expenses of the business.
- Net Earnings: An increase, decrease, or stability in net earnings for shareholders as compared to the previous year.
- EPS: a change in the EPS for shareholders on a YOY basis.

**For Investors:**

- Dividend Per Share: Investors can compare their DPS for the current and previous year on a percentage term.
- Return on Investment: YOY comparison of ROI for investors.
- Dividend Yield: analysis of dividend yield for investors.
- Dividend Growth: It compares the dividend growth to whether the stock has increased.

**For Economies:**

- GDP Growth
- Inflation Rate
- Unemployment Rate
- Interest Rate

## Alternative Metrics to YOY

Year-over-year is used for annual comparisons. Analysts can convert seasonal or quarterly figures to annualized terms to use YOY as well.

YOY is in contrast with sequential analysis which uses two consecutive monthly or quarterly figures. However, when using the annual figures both these metrics would give the same answer.

Some useful alternatives to YOY are:

**Month-on-Month**Analysis for monthly comparisons.**Quarter-over-Quarter**analysis for quarterly performance measurements.**Year-to-Date**which analyzes the performance of a measurable unit from the beginning of the year to the date of analysis.**Compound growth rate**which compounds the growth of the measurable unit to the present term.

## Advantages of Using YOY

YOY analysis has several advantages for its users.

- It is a simple measure and easy to calculate for any type of data.
- It is widely used and easily understood by managers, investors, and analysts.
- It offers results in a percentage term which makes comparisons and trend analysis easier.
- It can be used to understand the seasonal impacts on a business or economy on different performance metrics.
- It helps in historic analysis and planning.

## Disadvantages of Using YOY

The Year-on-Year analysis also comes with some limitations.

- Yearly comparisons may ignore several key points as it uses a completed figure of year-end.
- It may not be suitable for detailed analysis on a daily or monthly basis where input metrics fluctuate several times.
- Investors may not like this trend as yearly comparisons are large spans for short-term trading goals.
- It depends on two figures from yearly data sets which can be manipulated to adjust favorable results.
- If the analysts repeat YOY insights with multiple data points from the same range, the results may improve artificially.