Year-Over-Year Growth Rate: Explanation, Examples, and Calculation
What is Year-Over-Year Growth Rate?
Year-over-year (YOY) growth is a key performance indicator comparing statistics in one time period (ex: a month) against the comparable previous period (ex: the same month in the previous year). YOY provides performance information without seasonal effects, monthly volatility, and other aspects.
Year-over-year (YOY) is a method of assessing to compare the results of one period with an identical period on an annualized basis.
As an example, it would be more accurate to compare company revenue growth between December 2021 and December 2020 (usually in the December month sales are high due to winter), rather than comparing December 2021 to November 2021. This eliminates the seasonal effect for the sales growth. Most companies see a sharp uptick in sales during the holiday season. This provides a false indication on a single month to month comparison.
As an example, let’s say a company needs to analyze its profitability. They choose two options for this.
Option 01 – Compare the current month’s profit with the last month. Ex: Compare the profit of 2022-February month with 2022-January month.
Option 02 – Compare the profit of a month with the last year’s same month. Ex: Compare the profit of 2022 January month with 2021 January month.
In option 1, there will be various factors affecting the comparison such as seasonality and trends. Hence the comparison will not reflect the true profitability increase or decrease. Option 2 is the YOY method of assessing to compare the results of one period with a similar period on an annualized basis
How to Calculate Year-Over-Year Growth Rate?
There are Two Formulas to calculate Year-Over-Year Growth Rate. Both provide the same output.
Year-Over-Year Growth = ( Current Period Amount / Previous Period Amount ) – 1
Year-Over-Year Growth = ( Current Period Amount – Previous Period Amount ) / Previous Period Amount x 100
Following are the steps to calculate Year-Over-Year Growth,
Step 01 – Collect the data needed
Let’s say you need to compare the YOY between revenue in Year 02 quarter 1 with the revenue in Year 1 quarter 1. Let’s assume Year 02 Q1 revenue is $300,000, Year 01 Q1 revenue is $250,000
Step 02 – get the current period amount and divide this from the previous period amount
This means divide $300,000 from $250,000 ($300,000 / $250,000). Output is 1.2
Step 03 – Subtract the above value with 1
This means to subtract 1.2 from 1
= 1.2 – 1 = 0.2
Year-Over-Year Growth Rate = 20%
Examples of Year-Over-Year Growth Rate
The Year-over-year (also referred to as year-on-year) comparison method is an effective way to assess the financial performance of a company and also the return of the investments. Following are some examples for year-over-year growth calculation,
Scenario 01 – Production Company
Following is the year-over-year revenue and sales growth comparison on a quarterly basis.
YOY Revenue Comparison of 2022 Q1 vs 2021 Q1 = ( 1,050 / 1,000 ) – 1 = 5%
Growth is positive for this quarter.
Scenario 02 – Healthcare Company
Following is the year-over-year number of patients and cost per patient comparison on a monthly basis.
YOY Cost Per Patient Comparison of 2022 April vs 2021 April = ( 4,950 / 5,100 ) – 1 = -3%
Growth is negative for this month.
Scenario 03 – Logistics Company
Following is the year-over-year number of successful deliveries comparison on a monthly basis.
YOY Number of Successful Deliveries Comparison of 2022 October vs 2021 October = ( 870,000 / 870,000 ) – 1 = 0%
There is no growth for this month.
YOY growth rate calculation can be used (but not limited) for the following in the real world,
- Sales Revenue
- Cost of Goods Sold (COGS)
- Administration Expenses
- Net Profit
- Earnings Per Share
- Dividend Per Share
- Inflation Rate
- Gross Domestic Product (GDP)
- Interest Rate
- Number of Goods Soled
- Number of New Customers Acquired
Pros of Year-Over-Year Growth Rate
Year-over-year (YOY) is a productive way of analyzing comparative growth for the following reasons.
- Dismisses the effects of seasonality
- Simple method for calculation
- Provides output as percentages which directly comparable
- Avoids long-term tendencies
Sample Spreadsheet / Excel Files for Year-Over-Year Growth Calculation
Please refer to the below article to download the sample spreadsheets (excel) for YOY calculation. This is a fully editable file where you can download, comprehend, and amend this according to your preference.
Alternative Options for Year-Over-Year Growth Calculation
Following are some alternative methods for the YOY analysis.
- Month over month analysis
- Quarter over quarter analysis
- Year to date analysis
- Compound growth rates analysis
- Month to date analysis
- Quarter to date analysis
Further Explanation of YOY Growth Method,