What is (YOY) Year-Over-Year?

The term year-over-year (YOY), sometimes known as year-on-year, is widely used in finance to compare two or more observable happenings annually. YOY performance can be used to determine if a company's financial performance is better, remaining the same, or declining. 

YOY compares data between one time period and the year before. When analyzing economic or financial data, year-over-year comparisons are commonly employed. One may understand how a given variable changes over the course of a full year rather than just a few weeks or months by looking at year-on-year statistics.

YOY Explained?

Year-over-year is a growth formula that is frequently used in economic and financial fields. It is an efficient method for a company to determine whether specific aspects of its business are scaling or slowing down is by comparing how variables perform year by year. A year-over-year comparison has the benefit of eliminating potential monthly swings.

For example, due to the Christmas season, many businesses experience an increase in sales in November and December. When compared to a report showing a 20% increase in revenue from the most recent December to December timeframe, the data from a company reporting a 35% growth in value in December would be less insightful.

When evaluating how far an economy or investment is performing, the longer time frame helps put data into better context.

Because most business sectors experience a high season and a low season, sales, profitability, and other financial measures fluctuate throughout the year.

Comparing one year's fourth quarter performance against other years' fourth quarter performances is significant. If an investor compares a company's fourth-quarter earnings to those of the third-quarter prior, it can appear that the company is experiencing unprecedented growth when in fact the difference in results is the product of season.

In order to comprehend economic performance over the previous year, several government agencies provide economic data using year-over-year estimates. Calculations that compare one year to another are simple to understand and make comparisons throughout time simple.

The consumer price index, gross domestic product, unemployment rates, and interest rates are a few examples of the key economic data presented in this fashion. Businesses will also compute important financial performance measures using year-over-year data.

Businesses and investors may consider year-over-year estimates, but should not be the sole determinant they employ. It might occasionally be helpful to break down revenue or investment returns by month. Only considering yearly data may result in toning down a strong month. Likewise, if only year-over-year comparisons are made, a particularly bad month for the company might be missed.

Year-over-year comparisons have the additional drawback of being unable to completely explain the mechanics of economic or corporate growth. Year-over-year comparisons show trends, but they cannot provide enough details to understand why certain trends are happening.

Calculating YOY

Any economic or financial variable's year-over-year increase can be determined using a simple formula. The following equation can be used to calculate GDP year over year:

(GDP of the current year - GDP of the previous year) / GDP of the previous year * 100%