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What Is the Year-on-Year (YOY) Growth Formula: Meaning, Usage, and Calculations

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The year-on-year growth (YOY) formula is a calculation that shows how much a company has grown from one year to the next. It can be used to compare different periods of time, or to measure the success of a business venture.

In this article, we will discuss what the YOY growth formula is, and how to calculate it. We will also provide some real-life examples to help illustrate its use.

What is (YOY) Year over Year growth?

Year-over-year (YOY) growth is a metric used to compare the performance of a company or industry during a specific time period in one year, to the same time period the previous year.

YOY growth helps provide context and allows for easier trend analysis by removing the impact of seasonal fluctuations on overall numbers.

For example, if Company X had $10 million in revenue during Q1 of 2022 and $12 million in revenue during Q1 of 2023, their YOY growth for Q1 would be 20%.

YOY offers insight into longer-term trends, rather than just evaluating individual quarters or months. Growth can also be calculated for metrics such as profit, expenses, and number of employees.

While YOY growth is not necessarily a perfect indicator of a company’s overall financial health, tracking it can provide valuable insights into long-term trends and changes in performance.

Now let’s look at the formula and see how calculating YOY growth works.

The YOY formula

The YOY growth formula is:

(Current Period Value – Previous Period Value) / Previous Period Value x 100.

For example, if your company’s revenue was $10 million in 2022 (same period) and $8 million in 2021 (previous period), their YOY growth would be calculated as (10-8/8) x 100, or 25%.

The year-over-year growth formula lets you compare different time periods, as it controls for variations in the size or duration of the time periods being compared.

Understanding YOY growth can help businesses track their performance and make informed decisions about their future plans. In addition, investors often use YOY growth as a measurement of a company’s success and potential for investment.

How do you calculate YOY growth? Examples

Now let’s look at a few real-world calculations for major companies. We’ll calculate the YOY growth rate for key performance indicators like financial performance, cash position, and expenses.

Apple’s operating income YOY calculation

apple income statement for YOY calculations
Yahoo Finance

We see that apple had $119,437,000 thousand in operating income on September 29, 2022. For the same period in 2021, their operating income was $108,949,000 thousand.

Using our YOY formula, the growth percentage for apple looks like this:

Step 1: current year-previous year = 119,437,000-108,949,000 = 10488000

Step 2: Step 1 value/previous year = 10488000/108,949,000 = 0.096265

Step 3: YOY percentage rate = Step 2 value x 100 = 0.096265×100 = 9.67%

From this example, we can see that the company’s growth, year over year for operating income was 9.67%.

Tesla’s cash position YOY calculation

Tesla cashflow statement for YOY calculations
Yahoo finance

To see how Tesla’s final cash flow position changed from 2020 to 2021, we’ll use the end cash positions to calculate year-over-year performance.

End cash position for 12/31/21 = 18,144,000

End cash position for 12/31/20 = 19,901,000

Now using the year-over-year calculations, we get:

((18,144,000-19,901,000)/19,901,000)x100= -8.83%

A negative value indicates that Tesla’s cash position reduced by 8.83% over the same period next year. This means rather than growth, they experienced a reduction in cash on hand.

If working with numbers makes your head spin, don’t worry. We now have amazing software that can do all sorts of financial calculations for you. And they’re not just limited to YOY formulas. You can track expenses, manage spending, and much more.

Amazon’s total expenses YOY calculation

amazon income statement example for YOY calculations
Yahoo Finance

For Amazon, here is how total expenses for 2021 and 2020 compare:

Total expenses 12/31/2021 = 444,943,000

Total expenses 12/31/2020 = 363,165,000

Using the YOY formula, we get:

((444,943,000-363,165,000)/363,165,000)x100 = 22.52%

You’ll notice that although we get a positive number with a YOY calculation if taken in isolation, this may not be a good sign for a company because the positive number represents a growth in expenses. But it may also be the case that the company has invested a lot more over this period into assets and employees and that’s why expenses have risen. The point is, always use your YOY figures in the context of your company.

Related: 16 Amazon Leadership Principles for Success

Why is year-over-year growth important? YOY calculation benefits

Measuring year-over-year growth is an essential part of assessing the health of a company. By looking at the YOY growth rate, businesses can track their progress (or lack thereof) and make changes as needed. Here are five reasons why year-over-year growth calculations are so important:

1. Helps businesses track progress

Year-over-year growth calculations provide a clear way to track a company’s progress over time. Businesses can identify patterns and trends, and make changes accordingly.

For example, if a business sees that its year-over-year growth has stagnated, it may need to reassess its strategies and make some changes in order to jumpstart growth.

2. Indicates whether a company is on the right track

In addition to tracking progress, year-over-year growth calculations also indicate whether a company is on the right track. If a business wants to achieve a certain level of growth, it can use year-over-year calculations to gauge whether it is on track to reach its goals. If it is not on track, the company can make the necessary adjustments. 

3. Helps businesses identify areas of opportunity

If a company sees that its year-over-year growth in one area is outpacing its overall growth, it may want to focus more attention on that area in order to continue driving growth.

Similarly, if a company sees that its year-over-year growth has declined in one area, it may want to take steps to turn things around before it becomes a bigger problem.

4. Provides context for other metrics

Year-over-year growth calculations also provide context for other metrics.

For example, if a company’s revenue growth rate is 10% from one year to the next, that number means something different if the company’s overall expense growth is 20% versus if it was 2%. The former implies a comparably smaller growth in revenue compared to expenses. The latter implies that the company might be undergoing unprecedented growth, and may have found some winning formula.

As such, year-over-year growth calculations can help businesses put other metrics into perspective and make better decisions as a result. 

5. Allows businesses to benchmark against competitors

Finally, year over year growth calculations also allow businesses to benchmark against their competitors. By comparing their own year over year growth rates against those of their competitors, businesses can get a better sense of how they are performing in relation to others in their industry. This information can then be used to make strategic decisions about where to focus their efforts going forward. 

How to Interpret YoY Growth Analysis?

There are a few things to keep in mind when interpreting YoY growth analysis.

First, it’s important to remember that small changes can lead to big swings in YoY growth percentages. For example, if your business did $100,000 in sales in January 2021 and $105,000 in sales in January 2022, your YoY growth would be 5%.

However, if your business did $1 million in sales in January 2021 and $1.05 million in sales in January 2022, your YoY growth would also be 5%. So, it’s important to put the numbers into context and look at the bigger picture.

Second, it’s important to remember that there are many factors that can affect YoY growth.

For example, external factors such as the pandemic or an economic recession can impact your business’s YoY growth, even if your business is doing everything right. As such, it’s important not to read too much into any one data point and instead look at trends over time.

FAQs

What does YOY mean?

“YOY” stands for “year-over-year,” and it’s commonly used in finance and business to compare figures or data from one year to the previous year. For example, if a company reports a 10% YOY increase in revenue, it means that their revenue increased by 10% when compared to the previous year. YOY can also be used to evaluate statistics like net income, profit margin, or cost of goods sold. 

What’s the Difference Between YOY and YTD?

YOY, or year-over-year, compares data from the current period to the same period in the previous year. YTD, or year-to-date, compares data from the start of the current year up until now.

For example, if it is currently May 2022 and you are looking at sales data, YOY would compare May 2021 to May 2022. While YTD would compare January 2022 to May 2022.

Both metrics can provide valuable insights into growth trends, but it’s important to understand which time frame each one represents.

What is the Quarter over Quarter (Q/Q) analysis?

Similar to year-over-year comparisons, Quarter over Quarter growth (Q/Q growth) compares one quarter’s performance with the previous quarter’s performance. To calculate Q/Q growth, simply take the current quarter’s sales numbers and divide them by the previous quarter’s sales numbers.

For example, if your company did $100,000 in sales in Q3 and $120,000 in sales in the fourth quarter, your Q/Q growth rate would be 20% ($120,000/$100,000). 

Other alternatives also include Month to date (MTD), Month over month (MoM) to calculate growth. The former measures growth from the beginning of the month to the current date. The latter measures the difference between the current month’s metric and the previous month’s.

Conclusion

As you can see, there are many reasons why year-over-year growth calculations are important for a company. From tracking progress and identifying areas of opportunity to benchmarking against competitors, these calculations provide valuable insights that can be used to make strategic decisions about the future of a business.

And now that you know how to do this calculation, you’re well on your way to making more informed decisions about your company.

If you want to learn more about the intricacies of finance or just become more accounting and finance literate, we recommend reading our review of the best accounting books. The article includes books for beginners and experts alike. If you want to brush up on a concept or learn something new, you’ll find something for everyone on this list.

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