YOY Meaning (Explained: All You Need To Know)

Looking for the meaning of YOY?

What does YOY mean?

What’s important to know about it?

Keep reading as we have gathered exactly the information that you need!

Let me explain to you what YOY is and why it’s important!

Are you ready?

Let’s get started!

What Is YOY

In business, YOY is short for “year-over-year” representing a term used when comparing financial measures on an annualized basis.

There are many quantifiable events that can be measured on a year-over-year basis, such as the year-over-year progression of revenues, expenses, financial ratios, or any other financial metrics.

Executive managers, financial analysts, and business professionals will typically look at the year-over-year trend for several years to see if the company is doing better, staying constant, or getting worse.

For example, if a company looks at revenues YOY, it is interested to see how the its revenues are changing, every year, over time.

If revenues are improving YOY, the company is on the right path.

However, if revenues are not improving YOY, the management team has to assess why it is so and implement any corrective actions necessary.

Keep reading as I will further explain to you the meaning of YOY in business and how it is used.

Recommended article: What does TTM mean

Why Is YOY Important

YOY is a highly popular way of comparing financial metrics or quantifiable events over a course of many years.

Nearly all businesses will want to know how their sales, revenues, net profit, or other profitability metrics are changing YOY.

Investors will want to know how a stock or investment has been performing on a YOY basis when comparing different investment options.

Since YOY is an easy and effective way to measure performance or financial metrics over time, anyone in business should be familiar with this term.

Financial analysts, investors, company managers, board members, and shareholders can compare practically any quantifiable event over time on an annualized basis.

Recommended article: What is revenue generation

How To Use YOY

You can compare any financial metric or quantifiable event using a year-over-year analysis.

Very often, companies will use the YOY analysis to assess their financial performance such as sales, costs of goods sold, net profits, and other financial metrics that vary over time.

YOY provides valuable information for companies as it assesses a particular set of data over a period of a year, which includes seasonal volatility and other business cycles occurring in a one-year period.

As a result, a company assessing its sales on a YOY basis will reduce the impact of seasonality in its comparison.

For example, a company may have higher sales during the winter season and lower sales in the summer.

By analyzing sales year-over-year, the company will average out the sales over the entire period getting a better sense of direction.

You can also use the YOY analysis to assess how you are doing in a particular season or quarter.

For example, a company can compare sales in the first quarter year-over-year.

This way, the company is seeing how it performed during the specific quarter.

Recommended article: What are liquidity ratios

YOY Financial Measures

Although YOY analysis can be applied to any time series of data, in business, there are some financial measures that are commonly evaluated using a YOY analysis.

The most common YOY financial measures are sales, costs of goods sold, EBITDA, gross revenues, net income, earnings per share, and selling, general and administrative expenses.

For example, if a company is analyzing its costs of goods sold (COGS) YOY in the course of the past three years, it can see whether it is on the right track in managing costs or not.

If the COGS are decreasing, sales increasing and net profits going up, this is a really good sign.

However, if COGS are increasing while other measures are staying constant, the company may have lost some efficiency or is purchasing material at higher rates, further assessment will be required.

Recommended article: What is a cash flow forecast

YOY vs Sequential Analysis

What is the difference between a YOY and sequential analysis?

A YOY comparison is when you are looking at a one-year period compared to another one-year period.

For example, you can compare net profits for the past year compared to other prior years.

Typically, company managers and analysts will want to compare financial metrics YOY over a three-year period.

On the other hand, a sequential analysis is when you are comparing a cycle with the cycle immediately prior to it.

For example, if you are looking at quarterly revenues sequentially, you’ll compare Q2 to Q1, or Q3 to Q2.

The idea is to see how one period compares to the period immediately after it, sequentially.

Sequential analysis can be done daily, weekly, monthly, quarterly, semi-annually or in any other cycle.

Recommended article: The meaning of settled cash

YOY Meaning FAQ

What is the YOY meaning?

YOY is short for “Year-Over-Year” which is a calculation used to compare data from one year to another year.

YOY calculations are done to evaluate investment returns, company performance, economic trends, and so on.

Since the evaluation is done on a “year” over a “year” basis, you will reduce the impact of seasonal or cyclical changes affecting your data.

When to use YOY?

YOY is a highly popular, easy, and efficient calculation allowing you to compare one set of data over a one-year period with another year period.

Very often, YOY comparisons are done in business, to compare a company’s financial performance over time, to compare investment options, assess financial ratios, or to assess a country’s economic performance.

For example, you can compare a country’s Gross Domestic Product YOY to see how it is doing over time.

How to calculate YOY change?

Calculating YOY change is not very complicated.

Let’s assume that a company has the following net profit figures:

• Year 1: $10M
• Year 2: $12M
• Year 3: $15M

To calculate the YOY change between Year 1 and Year 2, you need to take $12M – $10M and divided the result by $10.

In this case, the YOY change between Year 1 and Year 2 is 20%.

The YOY change between Year 2 and Year 3 is 25% ($15M – $12M / $12M).

Recommended article: What is a leveraged company

Takeaways 

So there you have it folks!

What does YOY mean?

In a nutshell, YOY refers to a type of financial analysis where you are comparing a series of data over one-year periods.

In other words, you are assessing changes in quantity, performance, quality, or any other quantifiable measure one year compared to another.

In finance, analysts will look at the YOY performance of a stock to see how well it has been doing over time.

In business, companies will look at their growth, sales, profits, and other measures YOY to see how they are performing.

Looking at year-over-year comparisons provides highly valuable information when comparing data over a period of time that everyone should be familiar with it.

Now that you know what YOY is and how it works, good luck with your research!

You May Also Like Related to YOY Meaning