## Advantages (Pros / Positives / Benefits) of Year Over Year Analysis (YoY)

1. Helps to analyze the annual, quarterly as well as monthly growth trend based on financial need

As an example, Quarter 4 in any year (October, November, December) is a comparatively high performing quarter for most companies. Company management can do a YOY analysis to compare the current year’s Quarter 4 with the last year’s Quarter 4 to understand whether the company is growing (considering the seasonal factor), rather than comparing Quarter 4 with Quarters 3, 2, and 1 in the same year.

2. Calculates the growth trends by mitigating seasonality factors

As an example: Most companies expected to improve sales in the December month of any year due to the Christmas season. Comparing the sales data of the December month between years will be more beneficial for the investors rather comparing the yearly total. Investors can easily figure out the revenue trend and growth while considering the seasonal factor.

3. The YoY analysis method is a simple calculation. This does not require complex calculation methods

Simply the YoY can be calculated using one of the below approaches,

Approach 1: current year value divided by the previous year’s value, subtract the result from 1
Approach 2: current value minus the previous value and then divide the result by the previous value

5. YoY calculation results in a percentage value which easily comparable

As an example, if an investor does a YoY calculation of multiple investments, all the calculations return the percentages values, which the investor can easily compare and make decisions. Investors often rely on YoY analysis to gauge the financial health and growth prospects of a company. Consistent improvement in key metrics over multiple years can instill confidence and attract investment.

6. YoY is a popular and effective way to evaluate the financial statistics of a company and also evaluate the investment returns. Trend and growth are directly visible in the analysis

## Disadvantages (Cons / Negatives / Drawbacks) of Year Over Year Analysis (YoY)

1. Does not provide information on how to improve performance

2. Not practical for startup companies since no previous stats are available

This method requires past data to do the calculations and determine the growth percentage growth of the month in current year with the month in previous year. It can not show the percentage growth of same month in multiple years.

5. The YoY method can compare only two measured events at a single calculation

## How to Calculate Year Over Year (YoY) using Formula – with Examples

There are two approaches to calculating the Year-Over-Year (YoY),

Approach 1: Current year value divided by the previous year’s value, subtract the result from 1

Example (a): If a return on investment was \$10,000 in Year 2 and \$12,500 in Year 2, the YOY growth can be calculated as (\$12,500 / 10,000) – 1, resulting in 25%.

Example (b): Clothing company Year 1 December month sales were \$63,000 and Year 2 December month sales were \$78,000. The YOY growth can be calculated as (\$78,000 / \$63,000) – 1 = 23.8%.

Approach 2: Current value minus the previous value and then divide the result by the previous value

Example (a): if a return on investment was \$10,000 in Year 2 and \$12,500 in Year 1, the YOY growth can be calculated as (\$12,500 – \$10,000) / 10,000, resulting in 25%.

Example (b): Clothing company Year 1 December month sales were \$63,000 and Year 2 December month sales were \$78,000. The YOY growth can be calculated as (\$78,000 – \$63,000) / \$63,000 = 23.8%.

## Real-World Examples of Companies that have Effectively Leveraged YoY Analysis

• Example: Amazon is known for its data-driven approach to decision-making, and YoY analysis plays a significant role in its strategy. The company regularly analyzes YoY trends in sales, customer engagement, and operational metrics to identify growth opportunities, optimize pricing strategies, and enhance customer experience.
• Impact: By leveraging YoY analysis, Amazon has been able to make data-driven decisions that fuel its continuous growth and expansion into new markets. For example, it uses YoY data to refine its inventory management, improve product recommendations, and tailor its marketing efforts to specific customer segments.
• Reference: Amazon stated in their news release in aboutamazon.com that “AWS segment sales increased 13% year-over-year to \$90.8 billion“.
• Example: Netflix relies heavily on data analytics to drive content creation, user engagement, and subscriber growth. YoY analysis is integral to its strategy for evaluating the performance of original content, tracking subscriber churn rates, and identifying emerging trends in viewer preferences.
• Impact: By analyzing YoY trends in viewer engagement and subscription metrics, Netflix can make data-driven decisions about content investments, pricing strategies, and international expansion. For example, it uses YoY data to determine which original series or movies resonate most with viewers and prioritize investments accordingly.
• Reference: Netflix Research Analytics – research.netflix.com
• Example: As one of the world’s largest retailers, Walmart utilizes YoY analysis extensively to optimize its operations and drive sales growth. The company analyzes YoY trends in sales, inventory turnover, and customer behavior to identify opportunities for improving efficiency, enhancing product assortment, and tailoring promotions.
• Impact: By leveraging YoY analysis, Walmart has been able to make strategic decisions that drive revenue growth and improve customer satisfaction. For instance, it uses YoY data to forecast demand for seasonal products, adjust pricing strategies based on competitor trends, and optimize its supply chain operations to reduce costs.
• Reference: Walmart 2023 Annual Report
• Example: Google employs YoY analysis to evaluate the performance of its advertising platforms, measure user engagement across its various products and services, and track trends in online search behavior. By analyzing YoY data, Google can identify emerging market trends, refine its algorithms, and optimize ad targeting strategies.
• Impact: By leveraging YoY analysis, Google can make data-driven decisions that drive revenue growth and enhance user experience. For example, it uses YoY data to identify changes in user search behavior, adjust its algorithms to deliver more relevant search results, and optimize ad placements to maximize click-through rates.