# 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.

Formula 01:

Year-Over-Year Growth = ( Current Period Amount / Previous Period Amount ) – 1

Formula 02:

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,

1. Sales Revenue
2. Cost of Goods Sold (COGS)
4. Net Profit
5. Earnings Per Share
6. Dividend Per Share
7. Inflation Rate
8. Gross Domestic Product (GDP)
9. Interest Rate
10. Number of Goods Soled
11. 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.

1. Dismisses the effects of seasonality
2. Simple method for calculation
3. Provides output as percentages which directly comparable
4. Avoids long-term tendencies

## Alternative Options for Year-Over-Year Growth Calculation

Following are some alternative methods for the YOY analysis.

1. Month over month analysis
2. Quarter over quarter analysis
3. Year to date analysis
4. Compound growth rates analysis
5. Month to date analysis
6. Quarter to date analysis

Further Explanation of YOY Growth Method,