If you want to invest successfully, it is important to understand the concept of year-over-year (YOY). Year over year (or YoY for short) is a comparison of two data points, usually taken from two different years. The purpose of YoY analysis is to measure how much a particular metric has changed over time.
In this article, we will be looking at what Year-over-year or YOY is, how to calculate YOY, and do an analysis on it. So let’s begin.
What is Year-over-year (YOY)
Year-over-year (YOY) is a metric that allows you to compare two different data points. The most common use for YOY is to measure a company’s growth or decline. It is mostly used by investors so they can see how a company has progressed from the previous year.
Looking at YOY can give you a good idea of what to expect in the future. If a company has increased its revenue over the previous years, chances are high that it will continue increasing in the following years. Once you get used to looking at YOY numbers, you will start noticing trends about how businesses operate and connect with their customers.
How to Calculate Year-over-year (YOY)
To calculate YOY, you will need two data points: the current year and the previous year. The current year is what you are looking at now, while the previous year is the data point from before.
The calculation for YOY is simple: (this year)/(last year) – 1
As you can see, the calculation for YOY is not complex at all. All you are doing is dividing this year by last year and then subtracting 1. You don’t have to do that, though. There are plenty of online calculators that will help you calculate YOY with ease.
Let’s take a look at an example:
Let’s say Company A generated $100,000 in revenue this year. Last year, they generated $90,000 in revenue. The calculation for their YOY would be: (100,000/90,000) – 1 = 10% (YOY is usually expressed in percentage format)
As you can see, Company A’s revenue has increased by 10% from last year. So if you want to invest in Company A, now you have a clear idea of how it might perform in the future.
Year-over-year Analysis
Now that you know how to calculate YOY, let’s take a look at how to analyze it. The most important thing you want to look at is whether the company has increased or decreased from the previous year.
You can also use YOY analysis to compare companies against each other. For example, if Company A has a higher YOY than Company B, it means that Company A is growing at a faster rate.
It is also important to look at the trend of the data. If you see that the YOY numbers are going up or down, then you will have a good idea of which direction the company is heading in.
Conclusion
So now you know what YOY is, how to calculate it and how to perform an analysis on it. It is important to remember that, even if the company’s YOY number is positive, that doesn’t mean it will do great in the future. You also have to keep in mind that a company’s growth might slow down, so always factor that into your thoughts. YOY is just one metric for analyzing a company and its performance. And as you can see, it’s not too complicated to do. So you can give it a try.
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