What is YOY, and how does it affect your business?

In the business world, year-over-year (YOY) comparisons are often applied to measure a company’s financial performance. YOY is a comparison of two different points in time that can be used to assess progress or changes in various areas, such as revenue. 

This article will let you explore the core concept of year-over-year and answer frequently asked questions about the metric. Let’s get started.

What is YOY?

YOY is a financial indicator used to compare year-on-year performance. It compares the current year’s performance with the same period in the previous year, giving investors and businesses an idea of how their investments have been performing over a more extended period.

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It helps provide more context than a single year’s performance, as it can highlight any trends or patterns that may otherwise go unnoticed. Investors often use YOY to gauge investment performance, but it’s also helpful for businesses tracking their year-over-year revenue and expenses. YOY allows companies to quickly identify sales and profits, year-over-year changes, and areas requiring more attention or resources.

What does YOY change mean in finance?

The YOY comparison method is used in various industries but is especially common in finance. Companies use it to determine how their profits and losses have changed over time. The year-over-year comparison allows them to identify patterns and trends in their revenue, profits, losses, expenses, etc.

YOY can also be used to track customer loyalty and engagement. For example, a company may compare its year-over-year sales to determine if clients are returning year after year and if they’re spending more or less. This metric can also help businesses identify any areas that need improvements, such as customer service or product offerings.

YOY is a valuable tool for investors and businesses, allowing them to gain insight into year-over-year performance with minimal effort. Comparisons can provide an unbiased overview of year-over-year performance, helping make more informed decisions.

Note! You can also use month-over-month (MoM) and quarter-over-quarter (QoQ) comparisons to understand better how your business finances have changed over time.

Understanding YOY comparisons

There are many reasons businesses engage in year-over-year comparisons. YOY analysis allows firms to measure their progress, identify new opportunities, and monitor risks. It provides insight into an organization’s financial performance and helps inform future decisions by tracking year-over-year trends.

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For example, year-over-year numbers can provide insight into how much revenue the company earned in the prior period, how its expenses have changed over time, and what investments it should make moving forward.

YOY is also helpful in making comparisons between firms. Investors can identify which performs better by comparing year-over-year financial data points from different companies. This information can help them determine which business to invest in or partner with.

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Benefits of YOY

There are several benefits for businesses. One is that year-over-year analysis allows comparison between different periods.

For example, a company wished to compare performance year over year for the same month. The analysis can provide valuable insight into whether the business improved or declined. In addition, YOY helps understand seasonality as it allows comparisons to compare performance trends over different times.

Here is a list of benefits YOY comparisons can bring to your business:

  1. It helps companies compare performance over the years.
  2. It allows for the analysis of seasonality.
  3. It provides a comprehensive look at year-over-year trends.
  4. It can give valuable insight into whether the business improved or declined in a given period.
  5. It can be used to identify potential areas of improvement and opportunities.
  6. It helps keep track of changes in the market and industry.

In short, year-over-year analysis is an excellent way to monitor strategic plans, budgeting, and the business’s overall performance.

Real-world example

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What does it mean when a firm makes YOY data publicly available? Let’s look at an example. In a 2019 NASDAQ report, Kellogg Company, a well-known maker of breakfast cereals and fast food products, posted conflicting numbers for the last quarter of 2018. YOY earnings continued to decline, even as sales increased as a result of corporate acquisitions. Kellogg predicted that yields would drop by a further 5% to 7% next year as it continued to invest in alternate channels and pack formats.

The business also revealed plans to eliminate and reorganize several divisions. Despite declining YOY earnings, the firm’s continued presence and attentiveness to changes in consumer behavior have led to an overall favorable outlook.

FAQs

To help you understand year-over-year comparisons even better, we’ve answered the most common questions about the metric.

What is YOY used for?

Year-over-year (YOY) compares one year’s results to the period before. It can be used to measure income, expenses, profits, etc., allowing companies to make sense of trends over time and make constructive decisions.

How is YOY calculated?

The year-over-year metric is calculated by comparing two data sets collected from different periods, such as annual sales figures for 2022 vs. 2021. This comparison helps to determine whether a company is growing or shrinking and indicates how well it is doing in terms of financial performance.

What’s the difference between YOY and YTD?

If you’ve heard of year-over-year (YOY) metrics, you may also be familiar with year-to-date (YTD) ones. While they both compare performance from one year to the next, there is an essential difference between them. YOY compares the current year with the prior; for example, 2022 performance with 2021. 

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On the other hand, the year-to-date metric measures the year’s results up until a specific date rather than comparing them to another year. For example, YTD might compare performance from January 1st through June 30th (of the same year).

The bottom line

Now you know the answer to the question, What does YOY mean in business, including real estate and sales? By understanding year-over-year analysis, companies listed on the stock market can better understand their performance, make better investments and operations decisions, and scale quickly in the long run. 

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