What Is Year-Over-Year (YOY)
An interesting aspect of YOY performance is its inherent length. When we compare two metrics on an annualized basis, it’s often impossible to say how far apart the numbers were during the first or second calendar quarter. So, when we choose to compare numbers from months earlier or months later, the result isn’t as impressive.
Looking at YOY data will also help remove the impact of a change in the start date of a quarter. The YOY comparison won’t capture the impact of a business’ fiscal year starting a month earlier or later. That’s a significant factor, and so it’s likely not something you want to factor into your investment decisions. Here are some examples to illustrate how the data can be helpful.
Why It Matters
Annualizing performance can also help assess whether the business is performing or deteriorating. For example, is a business that has had three consecutive years of positive financial results growing revenue or compounding cash earnings? Or is it a business that is growing its revenues, but is compounding losses? YOY can also help reflect whether or not a company is increasing market share.
If a company is selling a product or service that a significant amount of consumers are purchasing, it’s not unusual for the company to gain market share. If a company is losing market share, a company may be experiencing increased pricing competition and decrease its ability to gain or maintain market share. What Does YOY Growth Look Like?
Why YOY Growth Is Important
Businesses and financial reports highlight changes that occur over a period of time. For example, revenue growth is measured over a quarter, a year, or even a longer time frame. One of the most common ways to track such changes is by looking at YOY performance. In other words, the higher the YOY growth rate, the better the results.
If we are comparing quarterly YOY performance over a 12-month period, the lower the YOY growth rate, the better. For example, let’s compare that company’s YOY revenue growth with that of a competitor. The higher the company’s YOY revenue growth is, the better the company’s financial performance. It also means the company is doing a better job at increasing revenue over time.
How to Track Year-Over-Year Growth
Comparing YOY changes allows for evaluating how changes in one metric compare to changes in another, and to establish a baseline for future comparisons. For example, a chart that shows year-over-year changes in gross margin is informative because it can illustrate changes in gross margin from quarter to quarter.
Similarly, a chart that shows YOY changes in net income can illustrate changes in net income from quarter to quarter. Using this information can help investors determine if a company’s financials are improving over time.
While not a perfect measure, a company’s YOY revenue growth is a good indicator of its future financial performance, with the caveat that the company’s growth may not last forever. For example, if a company’s revenues double in a year or a year and a half, the future could be rocky for the company. On the other hand, it could be an indicator of an improving company’s future.
It also provides an idea of how the company is growing its business, as its revenue increases. In terms of data, a year-over-year growth rate compares the company’s revenues with the same period last year, or the same quarter last year, whichever is less. How Does NetPay’s YOY Revenue Growth Measure Up? NetPay’s revenues grew by 1.7%, or $102,281, from $8,986,494 in 2016 to $8,987,080 in 2017. It was also up 4.