Year-over-year (YOY) growth is a key performance indicator comparing growth in one period (usually a month) against the comparable period twelve months before the previous year, hence the name). Unlike standalone monthly metrics, YOY gives you a picture of your performance without seasonal effects, monthly volatility, and other factors. You see a clearer picture of your actual successes and challenges over time. Unsurprisingly, this is a key metric for retail analytics.
The first big advantage of YOY growth is in eliminating seasonality from your growth metrics. Most retailers see a sharp uptick in sales during the holiday season. On a single month basis, this can give a false indication of massive growth.
Calculate the (YOY) Growth Rate
To calculate the (YOY) growth rate, you need two numbers: Last year number & this year number. Steps to follow:
Subtract last year’s number from this year’s number. That gives you the total difference for the year. If it’s positive, it indicates a year-over-year gain, not a loss. For example, this year you sold 115 paintings. Last year you sold 110. You sold 5 more paintings this year.
Then, divide the difference by last year’s number. That’s 5 paintings divided by 110 paintings. That gives you the year-over-year growth rate.
Now simply put it into per cent format. You find 5 / 110 = 0.045 or 4.5%.
Example: Lets say- in June 2021, total employment was 131.955 million. Total employment in June 2020 was 130.530 million. Here’s how to calculate the year-over-year growth rate.
Subtract 130.530 million from 131.955 million. The difference is 1.425 million.
Divide 1.425 million by 130.530 million, last year’s employment number.
The answer is 0.0109 or 1.09%. That’s the year-over-year growth rate.
Pros & cons
Pros-
Negates seasonality because, it compares specific points in time.
Smoothens out volatility throughout the year to compare net results.
Easy to calculate; no need for spread sheet or financial calculator.
States results in percentage terms for an easy comparison across different-sized companies.
Cons-
Offers meaningless results if one time period had negative growth.
Can hide problems in a given month if only comparing full-year metrics YOY.
Doesn’t offer much information unless used with other metrics.
Common YOY Economic Indicators
Here is a list of the most commonly used metrics for conducting a year-over-year comparison:
Inflation – what is the trend in inflation?
Unemployment rates – what is the workforce participation rate trend
GDP – how much gross domestic product is a country producing?
Interest rates – are we in a rising or falling interest rate environment
Common YOY financial metrics
Here is a list of the most commonly used financial metrics for conducting a year-over-year comparison:
Sales revenue – how much have sales increased or decreased year over year
Cost of Goods Sold (COGS) – how well has the company been able to manage its gross margin
Selling general & Administrative expense (SG&A) – how well have executives managed their corporate office expenses
Earnings before Interest Taxes Depreciation and Amortization (EBITDA) – a measure of operating profit and a proxy for cash flow
Net Income – comparing the bottom line of the business over time
Earnings Per Share (EPS) – looking at the bottom line on a per-share basis.
