Definition of YOY
- Year on year is a method of evaluating two or more measurable events on an annual basis. It is commonly used to evaluate the financial performance of the country.
- It is usually expressed in percentage terms.
- It is calculated using current values and previous year’s values.
- Variants of YOY includes Month on Month (MoM) and Quarter on Quarter (QoQ).
Calculation of YOY
- One has to determine the timeframe that must be used for comparison.
- One must then retrieve the relevant figures and data from the current and previous year.
- After which, one must subtract last year's numbers from this year's and divide the total by last year’s number. This must then be multiplied by 100 to get the final percentage.
- The figure is ready for analysis and evaluation.
Economic Indicators that use YOY Growth
- Reports the changes in stock of durable goods
- It can be used to estimate manufacturing jobs fluctuation and unemployment rates.
- It also shows how the economy has grown over time.
- It can also be used to gauge the trends in inflation.
- The rise or fall in interest rates over the stipulated time period can be traced using this measure.
Benefits of YOY Measurements
- It facilitates cross comparison of data sets.
- It is simple to track and calculate.
- One can view the results from an objective standpoint and undertake appropriate course correction measures.
- It is especially useful to compare revenue data.
- It facilitates comparison of investment portfolios.
- It helps mitigate seasonality in evaluating the performance of a company.
- It helps discern long term trends.
- It gives a different perspective from the linear growth model that indicates performance in a sequential pattern.
- It can also be used to compare macroeconomic variables such as money supply, GDP data etc.
Cons of YOY Measurements
- It offers meaningless results even if one time period has had negative growth.
- The company can hide problems in a particular month by only comparing full year metrics YOY.
- It is not a complete metric in itself and must be read with other metrics in order to get a proper understanding of the company’s financial situation.
Difference Between Year on year and Year on Date
YOY looks at a twelve month change that takes place in a specific measurable event, whereas, YOD, looks at the change relative to the beginning of the year on January first.
