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Year-over-year (YOY)

Year-over-year

Year-over-year (YOY)

Year-over-year (YOY) growth is a key performance indicator comparing growth in one period (usually a month) against the comparable period twelve months before the previous year, hence the name). Unlike standalone monthly metrics, YOY gives you a picture of your performance without seasonal effects, monthly volatility, and other factors. You see a clearer picture of your actual successes and challenges over time. Unsurprisingly, this is a key metric for retail analytics.

The first big advantage of YOY growth is in eliminating seasonality from your growth metrics. Most retailers see a sharp uptick in sales during the holiday season. On a single month basis, this can give a false indication of massive growth.

Calculate the (YOY) Growth Rate

To calculate the (YOY) growth rate, you need two numbers: Last year number & this year number. Steps to follow:

  1. Subtract last year’s number from this year’s number. That gives you the total difference for the year. If it’s positive, it indicates a year-over-year gain, not a loss. For example, this year you sold 115 paintings. Last year you sold 110. You sold 5 more paintings this year.

  2. Then, divide the difference by last year’s number. That’s 5 paintings divided by 110 paintings. That gives you the year-over-year growth rate.

  3. Now simply put it into per cent format. You find 5 / 110 = 0.045 or 4.5%.

Example: Lets say- in June 2021, total employment was 131.955 million. Total employment in June 2020 was 130.530 million. Here’s how to calculate the year-over-year growth rate.

  1. Subtract 130.530 million from 131.955 million. The difference is 1.425 million.

  2. Divide 1.425 million by 130.530 million, last year’s employment number.

  3. The answer is 0.0109 or 1.09%. That’s the year-over-year growth rate.

Pros & cons

Pros-

  • Negates seasonality because, it compares specific points in time.

  • Smoothens out volatility throughout the year to compare net results.

  • Easy to calculate; no need for spread sheet or financial calculator.

  • States results in percentage terms for an easy comparison across different-sized companies.

Cons-

  • Offers meaningless results if one time period had negative growth.

  • Can hide problems in a given month if only comparing full-year metrics YOY.

  • Doesn’t offer much information unless used with other metrics.

Common YOY Economic Indicators

Here is a list of the most commonly used metrics for conducting a year-over-year comparison:

  • Inflation – what is the trend in inflation?

  • Unemployment rates – what is the workforce participation rate trend

  • GDP – how much gross domestic product is a country producing?

  • Interest rates – are we in a rising or falling interest rate environment

Common YOY financial metrics

 Here is a list of the most commonly used financial metrics for conducting a year-over-year comparison:

  • Sales revenue – how much have sales increased or decreased year over year

  • Cost of Goods Sold (COGS) – how well has the company been able to manage its gross margin

  • Selling general & Administrative expense (SG&A) – how well have executives managed their corporate office expenses

  • Earnings before Interest Taxes Depreciation and Amortization (EBITDA) – a measure of operating profit and a proxy for cash flow

  • Net Income – comparing the bottom line of the business over time

  • Earnings Per Share (EPS) – looking at the bottom line on a per-share basis.



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