{"id":28972,"date":"2024-05-03T18:07:01","date_gmt":"2024-05-03T23:07:01","guid":{"rendered":"https:\/\/breakingintowallstreet.com\/?post_type=biws_kb&#038;p=28972"},"modified":"2024-11-19T22:45:54","modified_gmt":"2024-11-20T03:45:54","slug":"year-over-year-yoy","status":"publish","type":"biws_kb","link":"https:\/\/breakingintowallstreet.com\/kb\/finance\/year-over-year-yoy\/","title":{"rendered":"Year-Over-Year (YoY): Meaning and Examples in Financial Analysis and Financial Models"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_81 counter-flat ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Year-Over-Year (YoY): Meaning and Examples in Financial Analysis and Financial Models<\/p>\n<span class=\"ez-toc-title-toggle\"><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/breakingintowallstreet.com\/kb\/finance\/year-over-year-yoy\/#Year-Over-Year_Calculation_Example_How_Do_You_Calculate_YoY_Growth\">Year-Over-Year Calculation Example: How Do You Calculate YoY Growth?<\/a><\/li><li class='ez-toc-page-1'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/breakingintowallstreet.com\/kb\/finance\/year-over-year-yoy\/#What_Are_the_Most_Common_Year-Over-Year_YoY_Metrics\">What Are the Most Common Year-Over-Year (YoY) Metrics?<\/a><\/li><li class='ez-toc-page-1'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/breakingintowallstreet.com\/kb\/finance\/year-over-year-yoy\/#Why_is_Year-Over-Year_YoY_Important_in_Financial_Modeling\">Why is Year-Over-Year (YoY) Important in Financial Modeling?<\/a><\/li><li class='ez-toc-page-1'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/breakingintowallstreet.com\/kb\/finance\/year-over-year-yoy\/#Variations_of_Year-Over-Year_YoY_Growth_Rates\">Variations of Year-Over-Year (YoY) Growth Rates<\/a><\/li><\/ul><\/nav><\/div>\n\n<blockquote><p><strong>Year-Over-Year (YoY) Definition: <\/strong>In financial analysis, the Year-Over-Year (YoY) growth\u00a0compares a company&#8217;s performance in its most recent quarter or month to its numbers from the same quarter or month in the previous year.<\/p><\/blockquote>\n<p>YoY allows for an <strong>annualized comparison<\/strong>, such as between the second half of this calendar year and the second half of the previous year. By comparing a company&#8217;s performance to its performance in the same period of the previous year, you can see how its operations have changed over 12 months.<\/p>\n<p>Year-Over-Year growth is more useful than quarter-over-quarter (QoQ) growth because QoQ numbers reflect <strong>seasonality<\/strong>.<\/p>\n<p>In other words, if a company earns the bulk of its sales in Q4 each year (October \u2013 December), comparing its Q4 sales to its Q3 sales is deceptive because Q4 will <em>always<\/em> be stronger.<\/p>\n<p>It\u2019s much more useful to compare the Q4 numbers in one year to the Q4 numbers in <em>the previous year<\/em> so that you\u2019re comparing \u201cstrength\u201d to \u201cstrength.\u201d<\/p>\n<p>Year-Over-Year comparisons are common for quarterly and half-year periods, but you\u2019ll also see them used to measure monthly performance.<\/p>\n<h3><strong>Files &amp; Resources:<\/strong><\/h3>\n<ul>\n<li><a href=\"https:\/\/youtube-breakingintowallstreet-com.s3.us-east-1.amazonaws.com\/Finance\/EasyJet-YoY-Examples.xlsx\" target=\"_blank\" rel=\"noopener\">EasyJet &#8211; Sample Year-Over-Year (YoY) Growth Rate Calculations from Full Model Excerpt (XL)<\/a><\/li>\n<\/ul>\n<h2><span class=\"ez-toc-section\" id=\"Year-Over-Year_Calculation_Example_How_Do_You_Calculate_YoY_Growth\"><\/span><strong>Year-Over-Year Calculation Example: How Do You Calculate YoY Growth?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>You can use this formula to make the calculations:<\/p>\n<p><strong>Year-Over-Year Growth<\/strong> = Current Year\u2019s Value \/ Previous Year\u2019s Value \u2013 1<\/p>\n<p>Here\u2019s an example for <strong>EasyJet<\/strong>, a highly seasonal airline based in the U.K. (featured in our <a href=\"https:\/\/breakingintowallstreet.com\/advanced-financial-modeling\/\" target=\"_blank\" rel=\"noopener\">Advanced Financial Modeling course<\/a>):<\/p>\n<p><img decoding=\"async\" class=\"aligncenter wp-image-28973 size-full\" title=\"Year-Over-Year (YoY) Example for EasyJet\" src=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2024\/05\/03175404\/01-YoY-Example-EasyJet.jpg\" alt=\"Year-Over-Year (YoY) Example for EasyJet\" width=\"1696\" height=\"487\" srcset=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2024\/05\/03175404\/01-YoY-Example-EasyJet.jpg 1696w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2024\/05\/03175404\/01-YoY-Example-EasyJet-300x86.jpg 300w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2024\/05\/03175404\/01-YoY-Example-EasyJet-1024x294.jpg 1024w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2024\/05\/03175404\/01-YoY-Example-EasyJet-768x221.jpg 768w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2024\/05\/03175404\/01-YoY-Example-EasyJet-1536x441.jpg 1536w\" sizes=\"(max-width: 1696px) 100vw, 1696px\" \/><\/p>\n<p>If we looked at the <strong>sequential growth rates<\/strong> instead, they would be nearly useless because of the strong seasonality in EasyJet\u2019s business:<\/p>\n<p><img decoding=\"async\" class=\"aligncenter wp-image-28974 size-full\" title=\"Sequential Growth vs. Year-Over-Year (YoY) Growth\" src=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2024\/05\/03175546\/02-Sequential-Growth-vs-YoY-Growth.jpg\" alt=\"Sequential Growth vs. Year-Over-Year (YoY) Growth\" width=\"1686\" height=\"490\" srcset=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2024\/05\/03175546\/02-Sequential-Growth-vs-YoY-Growth.jpg 1686w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2024\/05\/03175546\/02-Sequential-Growth-vs-YoY-Growth-300x87.jpg 300w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2024\/05\/03175546\/02-Sequential-Growth-vs-YoY-Growth-1024x298.jpg 1024w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2024\/05\/03175546\/02-Sequential-Growth-vs-YoY-Growth-768x223.jpg 768w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2024\/05\/03175546\/02-Sequential-Growth-vs-YoY-Growth-1536x446.jpg 1536w\" sizes=\"(max-width: 1686px) 100vw, 1686px\" \/><\/p>\n<p>Measuring YoY performance lets investors gauge whether a company\u2019s financial performance is <strong>improving or worsening, ignoring the effects of seasonality<\/strong>.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"What_Are_the_Most_Common_Year-Over-Year_YoY_Metrics\"><\/span><strong>What Are the Most Common Year-Over-Year (YoY) Metrics?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>You can calculate YoY for <strong>\u201cflow\u201d metrics<\/strong> that measure a financial result over a period:<\/p>\n<ul>\n<li>Revenue<\/li>\n<li><a href=\"https:\/\/breakingintowallstreet.com\/kb\/accounting\/ebitda\/\" target=\"_blank\" rel=\"noopener\">EBITDA<\/a><\/li>\n<li><a href=\"https:\/\/breakingintowallstreet.com\/kb\/accounting\/net-income\/\" target=\"_blank\" rel=\"noopener\">Net Income<\/a><\/li>\n<\/ul>\n<p>But you can also use it for <strong>operational metrics and key performance indicators (KPIs)<\/strong>, such as:<\/p>\n<ul>\n<li>Units Sold<\/li>\n<li>Passengers<\/li>\n<li>Homes Built<\/li>\n<li>Miles\/Kilometers Flown<\/li>\n<\/ul>\n<p>For example, we can calculate the Year-Over-Year (YoY) growth for Available Seat Kilometers (ASK), a key operational metric that measures overall &#8220;capacity,&#8221; for EasyJet:<\/p>\n<p><img decoding=\"async\" class=\"aligncenter wp-image-28975 size-full\" title=\"EasyJet -Year-Over-Year (YoY) Growth in Available Seat Kilometers (ASK)\" src=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2024\/05\/03175615\/03-EasyJet-ASK-YoY-Growth.jpg\" alt=\"EasyJet -Year-Over-Year (YoY) Growth in Available Seat Kilometers (ASK)\" width=\"1692\" height=\"272\" srcset=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2024\/05\/03175615\/03-EasyJet-ASK-YoY-Growth.jpg 1692w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2024\/05\/03175615\/03-EasyJet-ASK-YoY-Growth-300x48.jpg 300w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2024\/05\/03175615\/03-EasyJet-ASK-YoY-Growth-1024x165.jpg 1024w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2024\/05\/03175615\/03-EasyJet-ASK-YoY-Growth-768x123.jpg 768w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2024\/05\/03175615\/03-EasyJet-ASK-YoY-Growth-1536x247.jpg 1536w\" sizes=\"(max-width: 1692px) 100vw, 1692px\" \/><\/p>\n<p>Year-Over-Year does <strong>NOT<\/strong> make much sense for Balance Sheet metrics such as Cash, Debt, or Inventory that measure the value of items at <em>specific points in time<\/em>.<\/p>\n<p>For example, you can calculate the YoY growth for a company\u2019s Cash balance, but it\u2019s not particularly useful because you normally care more about how the Cash balance compares to the company\u2019s Revenue and Expenses over this period.<\/p>\n<p>Finally, governments also use YoY to describe yearly changes in economic measurements such as an economy\u2019s gross domestic product (GDP), inflation, the money supply, and the unemployment rate.<\/p>\n<p>Again, the idea is to <strong>remove the effects of seasonality:<\/strong> If a \u201ctourist economy\u201d is always strong in Q3 due to summer travel, you should compare its Q3 GDP to the Q3 GDP in previous years rather than the Q2 or Q1 GDP.<\/p>\n<div class='code-block code-block-2' style='margin: 8px 0; clear: both;'>\n<div class=\"kb-adinsert-modal\">\n    <div class=\"kb-adinsert-top\">\n      <div class=\"media\">\n          <img decoding=\"async\" class=\"alignnone size-full wp-image-28448\" src=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2024\/04\/24164120\/adv-fm-tile.png\" alt=\"PowerPoint Pro\" width=\"128\" height=\"128\" \/>\n      <\/div>\n      <div class=\"content\">\n          <h3>Master Financial Modeling for Investment Banking With <strong>BIWS Core Financial Modeling<\/strong><\/h3>\n      <\/div>\n    <\/div>\n    \n    <div class=\"full_text\">\n    \t<ul>\n        \t<li>\n            \t<h4>Become a financial modeling pro<\/h4>\n              <p>158 videos, detailed written guides, Excel files, quizzes, and more<\/p>\n\t\t\t    <\/li>\n          <li>\n          \t<h4>Complete 10+ detailed global case studies<\/h4>\n            <p>These include both the theory and the practical applications<\/p>\n\t\t\t    <\/li>\n          <li>\n          \t<h4>Prepare for your internship or full-time job<\/h4>\n            <p>Gain the skills you need to \u201chit the ground running\u201d on Day 1\n\n<\/p>\n\t\t\t  <\/li>\n      <\/ul>\n        \n      <a class=\"cta-link orange-button-medium\" href=\"https:\/\/breakingintowallstreet.com\/core-financial-modeling\/\" target=\"_blank\">Full Details<\/a>\n      \n      <a class=\"cta-link orange-button-medium bg-blue\" href=\"https:\/\/biws-support.s3.us-east-1.amazonaws.com\/Course-Outlines\/Core-Financial-Modeling-Course-Outline.pdf\" target=\"_blank\" rel=\"noopener\">Short Outline<\/a>\n    <\/div>\n<\/div><\/div>\n\n<h2><span class=\"ez-toc-section\" id=\"Why_is_Year-Over-Year_YoY_Important_in_Financial_Modeling\"><\/span><strong>Why is Year-Over-Year (YoY) Important in Financial Modeling?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>As discussed above, when <a href=\"https:\/\/breakingintowallstreet.com\/kb\/financial-statement-analysis\/\" target=\"_blank\" rel=\"noopener\">analyzing the financial statements<\/a>, you always want to remove the effects of seasonality and focus on <strong>similar periods<\/strong> so you can compare \u201cstrength\u201d to \u201cstrength\u201d and \u201cweakness\u201d to \u201cweakness.\u201d<\/p>\n<p>As shown in the EasyJet examples above, many airlines are seasonal; other seasonal industries include retail, agriculture, and education.<\/p>\n<p>In <a href=\"https:\/\/mergersandinquisitions.com\/financial-modeling\/\" target=\"_blank\" rel=\"noopener\">financial models<\/a>, you often use these <strong>Year-Over-Year (YoY) growth rates<\/strong> to forecast revenue and KPIs for seasonal companies when you\u2019re working with monthly, quarterly, or half-year models.<\/p>\n<p>You even use YoY growth rates for marginally seasonal companies, such as building material suppliers. Here\u2019s an example for BMC Stock Holdings:<\/p>\n<p><img decoding=\"async\" class=\"aligncenter wp-image-28976 size-full\" title=\"Year-Over-Year (YoY) Projections for BMC Stock Holdings\" src=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2024\/05\/03175646\/04-YoY-Projections.jpg\" alt=\"Year-Over-Year (YoY) Projections for BMC Stock Holdings\" width=\"1776\" height=\"590\" srcset=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2024\/05\/03175646\/04-YoY-Projections.jpg 1776w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2024\/05\/03175646\/04-YoY-Projections-300x100.jpg 300w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2024\/05\/03175646\/04-YoY-Projections-1024x340.jpg 1024w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2024\/05\/03175646\/04-YoY-Projections-768x255.jpg 768w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2024\/05\/03175646\/04-YoY-Projections-1536x510.jpg 1536w\" sizes=\"(max-width: 1776px) 100vw, 1776px\" \/><\/p>\n<p>This specific company is not <em>that<\/em> seasonal, but the YoY growth rates are still more appropriate here because Q3 and Q4 tend to be the company\u2019s strongest quarters.<\/p>\n<p>Therefore, we want to forecast each year&#8217;s Q3 and Q4 revenue based on the <em>previous year\u2019s<\/em> Q3 and Q4 revenue.<\/p>\n<p>In other contexts, such as valuations (e.g., <a href=\"https:\/\/breakingintowallstreet.com\/kb\/valuation\/comparable-company-analysis-cca\/\" target=\"_blank\" rel=\"noopener\">comparable company analysis<\/a>), M&amp;A models, and <a href=\"https:\/\/mergersandinquisitions.com\/lbo-modeling-test\/\" target=\"_blank\" rel=\"noopener\">LBO models<\/a>, the Year-Over-Year concept is less relevant because you\u2019re not necessarily <em>building<\/em> new forecasts.<\/p>\n<p>If you\u2019re mostly gathering data or assembling two companies\u2019 financials, such as in a <a href=\"https:\/\/breakingintowallstreet.com\/kb\/ma-and-merger-models\/merger-model-walkthrough\/\" target=\"_blank\" rel=\"noopener\">merger model<\/a>, you need to understand the YoY growth rate concept but won\u2019t necessarily use it in the model.<\/p>\n<p>Therefore, YoY growth rates are <em>most<\/em> relevant in <a href=\"https:\/\/mergersandinquisitions.com\/3-statement-model\/\" target=\"_blank\" rel=\"noopener\">3-statement models<\/a> based on monthly, quarterly, or half-year periods rather than annual ones.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Variations_of_Year-Over-Year_YoY_Growth_Rates\"><\/span><strong>Variations of Year-Over-Year (YoY) Growth Rates<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>In addition to Year-Over-Year, several other metrics relate to <strong>sequential growth<\/strong> or <strong>growth in the year to date:<\/strong><\/p>\n<ul>\n<li><strong>Month-Over-Month (MoM):<\/strong>\u00a0This metric compares a specific metric&#8217;s performance in the current month to the same metric in the previous month, such as March revenue vs. February revenue. This metric is useful when a company grows at about the same rate each month and has minimal seasonality.<\/li>\n<li><strong>Quarter-Over-Quarter (QoQ):<\/strong>\u00a0Quarter-Over-Quarter compares a metric in one quarter, such as Q3 of this year, to the same metric in <em>the previous quarter of this same year<\/em> (Q2 in this case). Again, this is fine for companies with steady\/stable growth rates and minimal seasonality.<\/li>\n<li><strong>Year-to-Date (YTD):<\/strong>\u00a0Year-to-Date (YTD) growth is based on a metric from the <strong>beginning of the current year (January 1<sup>st<\/sup>) up through the current date<\/strong> vs. the same metric in that same period from <em>the previous year<\/em>.<\/li>\n<\/ul>\n<p>For example, if the current date is April 30<sup>th<\/sup>, 2024, you could calculate YTD Revenue Growth with:<\/p>\n<ul>\n<li><strong>YTD Revenue Growth<\/strong> = Revenue from January 1 to April 30<sup>th<\/sup>, 2024 \/ Revenue from January 1 to April 30<sup>th<\/sup>, 2023<\/li>\n<\/ul>\n<p>YTD gives you an idea of how much \u201cprogress\u201d has been made toward specific growth goals.<\/p>\n<p>For example, if the company aims for 15% growth for the entire year but has only grown 5% so far (in the first 4 months), it is clearly tracking below this growth goal.<\/p>\n<p>By contrast, YoY growth is more about measuring the trends <em>in one specific period<\/em> of this year compared with the previous year \u2013 not the progress toward a <em>specific goal<\/em>.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>In financial analysis, the Year-Over-Year (YoY) growth\u00a0compares a company&#8217;s performance in its most recent quarter or month to its numbers from the same quarter or month in the previous year.<\/p>\n","protected":false},"featured_media":29299,"template":"","class_list":["post-28972","biws_kb","type-biws_kb","status-publish","has-post-thumbnail","hentry","kb_category-finance"],"acf":[],"_links":{"self":[{"href":"https:\/\/breakingintowallstreet.com\/wp-json\/wp\/v2\/biws_kb\/28972","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/breakingintowallstreet.com\/wp-json\/wp\/v2\/biws_kb"}],"about":[{"href":"https:\/\/breakingintowallstreet.com\/wp-json\/wp\/v2\/types\/biws_kb"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/breakingintowallstreet.com\/wp-json\/wp\/v2\/media\/29299"}],"wp:attachment":[{"href":"https:\/\/breakingintowallstreet.com\/wp-json\/wp\/v2\/media?parent=28972"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}