What is a Year-Over-Year (YOY)?
Simply stated, a YOY analysis compares one event for one period with another event in the same period one year earlier. The period can be a week from last year compared with a week of this year, a day from last year compared with a day of this year, a month or a quarter…. you get the point.
A YOY analysis is a simple way for a business to determine whether the company is doing well, doing okay, or doing bad.
So if you own your business and want to know if it is doing well, you should do a year-over-year growth calculation annually. Another option is to talk to a financial advisor for professional advice.
Example of a YOY growth rate calculation
Let’s take an example: let’s say your company sells men’s suits. Last year, your company sold 1500 suits in the first 3 months of the fiscal year. This current fiscal year, your business sold only 1000 men’s suits in the first 3 months.
Based on a year over year (YOY) calculation, your company is doing worse than it was last year. In other words, the sales in the first 3 months of this fiscal year is less than the sales in the first 3 months of the previous fiscal year.
So 1000 suits this current year minus 1500 suits the previous year is 500 decrease in sales of suits YOY. The 500 sales decrease divided by 1500 is a 33 % decrease YOY.
How to calculate Year-Over-Year (YOY) growth rate.
Calculating a year over year (YOY) growth rate is very simple. The first step is to subtract last year’s number from this year’s number. If we use the men’s suit example, we have 1000 minus 1500. That’s -500. It’s negative, so it shows a loss.
The second step is to divide the loss by last year’s number. That’s -500 divided by 1500 suits. This gives you -0.33. That’s the year over year (YOY) growth rate, which is a 33% decrease.
Let’s take another example: In September of 2019 a small law firm made $550,000 in profit. The profit in September of 2018 was $480,000. So the YOY is a percent increase.
In other words to calculate the YOY, you subtract $480,000 from $550,000. That leaves you with $70,000. You divide $70,000 by $480,000, last year’s profit. Then you get 0.1458 or 14.6 percent, which is a 14.6 increase YOY.
Why a YOY analysis is important for your business?
If you’re a small business owner and you’re not well versed in financial analysis, cash flow statements, etc., a YOY analysis should be your best friend.
A YOY calculation of your company every year will not only help you better understand the general health of your company, it will also give you an idea on how to improve your company.
Indeed it’s a starting point to discover any inefficiencies.
Also, note that a YOY analysis can be used in almost every business model.
In sum, year-over-year (YOY) is defined as a comparison of your business earnings or other performance with the same data for the previous year. Using this simple analysis can help you determine if your sales have been increasing, decreasing, or stayed the same every year.
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