Year-Over-Year Analysis (YoY) is also known as Year-On-Year.
“Numbers don’t lie”, “what isn’t measured, never gets done” are popular parlance in finance and professional circles. These sayings aim to underscore the importance of measuring the performances of various aspects of our businesses or private lives from time to time.
Like individuals set New-year resolutions, companies too often set goals, marked by key performance matrices, indexes and parameters which are considered important towards attaining their aims and objectives within a particular time.
What is YoY?
Year-Over-Year or interchangeably called Year-On-Year analysis is a statistical mechanism for measuring and comparing quantitative key performances indices with those recorded in the previous year.
Milestones that are commonly measured by companies include Profitability, Expenditure, Revenue, Customer base, Taxes paid, Wages & salaries, Utility bills, etc.
In simple terms, it helps to compare current year achievements to last year’s accomplishments in order to set next year’s targets.
It is the easiest and most effective way to measure growth and observe performance trends.
Data analysis is a very broad field that is crucial to the success and smooth operation of any organization. In modern times, it has become increasingly important to keep records, gather information and make judicious use of them during decision making.
Data analysis can be generally defined as the process of observing, recording or calculating and transforming quantitative information about a specific topic or endeavor with the aim of discovering useful information for objective decision making.
In order to analyze data effectively, they need to be recorded and presented in an appropriate manner.
If data is not collected appropriately it would be almost unintelligible.
Types of Data
Data can be broadly categorized into 3 main groups in terms of how they are collected, namely, Cross-sectional, Time series, Panel Data.
- Cross Sectional Data
These are data sets collected at a single specific period of time on a particular statistical unit or topic. It makes no reference to changes over time but only focuses on a specific point in time when the data is being collected.
Simply put, no time sequence is involved in a cross-sectional data set. It is only a snapshot of how these are/were at a specific period of time.
Examples of Cross-Sectional Data would be a set of data on the topic, “Top 10 Countries with the highest number of migrants in Canada”
Importance of Cross-Sectional Data
It helps us to analyze multiple variables within a single time period. A great advantage of Cross-sectional data is that it can be used to analyse a particular item under different sections.
- Time Series Data
In simple terms, Time series data aims to measure the changes that have occurred over time within a particular topic or subject.
An example of Time series data is “Canadian Migration rates over the last 10 years”.
This will provide us information on the changes that have been observed in the rate at which people have migrated into Canada in 10 years.
Importance of Time Series Data
Life is dynamic. Everything around us changes from time to time. Time series data is what helps us to record these changes in a given subject to enables us to give some context or find reasons for them.
– It helps to analyze seasonal changes.
– It helps to predict trends across seasons.
– It helps to perform evolutional data analysis i.e. to observe how a particular variable has changed or developed over time.
- Panel Data
Panel data is a multi-dimensional presentation of data that involves comparisons over time for the same subject. It basically combines the strengths of the time series and panel data to give a more comprehensive view of the stats that are being presented.
Importance of Panel Data
It introduces the element of time that is missing in a cross-sectional data set and the multi-dimensional element that is missing in Time Series data. It is quite clear that panel data offers a more holistic view of statistical data.
An example of Panel data would be, “Canadian Migration rates over the last 10 years; Top Countries and Occupations”
Year-Over-Year Analysis is typically a form of Time series data analysis as it helps us to measure the changes in a particular variable over the course of two years.
Reasons for Year-Over-Year Analysis
- Performance Appraisal
Most indicators of performance in the corporate world are measure in annual terms. Financial data is mainly recorded monthly and summed up after 12 months to give an annual report.
This provides an opportunity to identify, measure and appraise employee and management appraisal. Everyone in and around a company is being constantly appraised.
Employees are being appraised by their managers on the basis of the annual performance of the specific business lines within their job description.
Managers also have their performances appraised on the basis of the annual performance of the specific business unit for which they are responsible.
The Company itself is being appraised by the general public, the owners, and potential investors. All of these people are looking out for the year-on-year performance to form their opinions on the viability and sustainability of the business in general
The taxman is also another reason for companies to track their figures in an annual fashion. Annual financial records are required in order for tax authorities to make appropriate deductions due to the government.
- Setting targets
No organization in the world exists without its own aims and objectives. YoY analysis helps an organization to set data-driven objectives and observe them from time to time. For instance, Countries try to measure the effects of their policies on their people.
Companies need to measure the profits and keep their expenditure in check.
- Identifying Trends
It helps to easily identify areas of strength and weaknesses to quickly come up with plans to make consolidate or make necessary changes to plug the gaps.
Sometimes companies may decide to change their operating strategy or methods for certain reasons, Year-over-Year analysis helps to observe if such changes over the past year have led to significant improvements or otherwise. Based on the results of the YOY analysis, the management can then strategize the next steps.
YOY analysis helps to identify the rate at which the company’s performances are approaching or diverging from the long-term targets that have been set for the future of the company.
(This Year – Last Year) / Last Year
= This Year – Last Year.
Ir measures how current year figures measure up against the previous year.
It can either be positive or negative.
It is Positive when figures for This Year exceed Last Year
Negative when This Year figures are lower than Last Year.
Jane&Jones Plc’ Sales Revenue Records for the two years are outlined as follows,
Calculating or Analysing YoY Growth
The first step is to YOY Growth by subtracting the 2020 figure from the 2019 figure,
This Year – Last Year = $4,000,000 – $3,500,000
Then we can go ahead to calculate the last part of the equation which is the rate of change between the two years in question.
$500,000 / $3,500,000 = 0.14.
YoY (Year over Year) Interpretation
The solution above can then be interpreted as follows,
– Over the last year, there has been a $500,000 increase in Sales revenue at Jane & Jones Plc.
– This increase represents a 14% growth in the Sales revenue at Jane & Jones Plc.
YoY Growth Formula Excel
Can be calculated on Microsoft Excel as Illustrated below,
- Step 1- Adjust the entry format i.e. Number
- Step 2- Input the previous year figure in another column i.e. A3
- Step 3- Input the most recent year data in a column i.e. B3
- Step 4- Identify the Row and Column References for both figures you have inputted i.e. A3, B3
- Step 5- Start by subtracting the recent year figure from the previous year to arrive at YOY Growth i.e. A3 – B3
- Step 6- Divide the result for YOY Growth by the previous year figure to arrive at the YOY growth rate. This is usually presented in percentage.
YoY analysis is said to have grown when figures for This Year exceed Last Year.
YOY analysis does not always turn out positive. If for any reason, the current year figures are lower than the previous year’s, we would have a negative result.
YOY Growth Calculator
Some software programs have been developed to help perform the YOY analysis with ease. It helps to automate the process for those of us that are not “Microsoft Excel Savvy”
Two excellent choices are Percent Change and Calculator Soup.
The term is not used in finance circles alone. In the age of texting and short messages, there are a few other interpretations of “YOY”. Examples of these are,
“Why, Oh Why”- used as a form of sarcastic exclamation in the face of a surprising and bewildering situation.
“Yes or Yes’ – this is another informal interpretation that passes a persuasive message onto the recipient indicate that the person simply cannot say No to the offer, request, claim or question that has been asked usually in the preceding sentence. E.g. would go to the movies with me tonight? YoY?
So, next time someone asks how your company has fared during the pandemic, formally or informally you can simply reply – YoY?