YoY Analysis: Is A Company Growing or Shrinking Annually?

Amazon directly competes with eBay in the U.S. online shopping landscape. In 2020, Amazon achieved 38 percent YoY net sales revenue growth whereas eBay's YoY revenue increased by 19 percent. Wondering what’s YoY, right? Let me decode it for you.

YoY stands for Year-Over-Year or Year on Year. It’s a type of analysis that analysts generally do for comparing time series data. To infer changes in certain business metrics, analysts often resort to YoY analysis. Investors frequently use YoY analysis for comparing the performance of different financial instruments. YoY analysis is also very useful for analyzing growth patterns and trends in different economic variables. Economists commonly use this approach for analyzing countries in terms of the movements in different economic indicators. For example, the Gross Domestic Product (GDP) in China expanded 18.3 % YoY in Mar 2021, following a growth of 6.5 % in the previous quarter.

The YoY approach may also be useful in analyzing monthly or quarterly revenue growth, especially for cyclical businesses. This facilitates an apple-to-apple comparison of revenue instead of comparing revenue month-over-month or quarter-over-quarter where revenue is subject to significant seasonal fluctuations. For example, in the relatively seasonal cake and pastry industry, it would be more useful to compare revenue growth between December 2020 and December 2019 (when sales spike because of winter sales), as opposed to comparing revenue growth between March 2020 and February 2020, when holiday sales begin to wane.  Comparing months in a year-over-year fashion is much more meaningful than comparing two consecutive months that are impacted by varying seasonality or other factors.

Let’s now decode how YoY changes in a variable, X, can be calculated. 

YoY growth in X = (Xt – Xt-1)/ Xt-1 

= Xt / Xt-1 – Xt-1/ Xt-1 

= Xt / Xt-1 – 1

Therefore,

Y-o-Y formula

Where, 

Xt = Value of X for year t

Xt-1 = Value of X for year t -1

Steps to follow:

Step 1: Identify the two annual data points relating to the metric for YoY analysis.

Step 2: Divide the current year’s data point with the previous year’s data point.

Step 3: To obtain the YoY change, subtract 1 from the output obtained in Step 2.

Consider the following comparative income statement:

Company Particulars

Calculations for YoY change for Net Sales, PBT, and PAT are shown below:

YoY change for net sales -
= (Net sales for 2021/ Net sales for 2020) – 1
= $350,000/$300,000 – 1
= 0.1667 or 16.67%

YoY change for PBT -
= (PBT for 2021)/(PBT for 2020) – 1
= $40,000/$38,000 – 1
= 0.0526 or 5.26%

YoY change for PAT -
= (PAT for 2021)/(PAT for 2020) – 1
= $28,000/$26,600 – 1
= 0.0526 or 5.26%

     

Let’s now understand how to do a YoY analysis based on quarterly net income data.

YoY Growth of the company

YoY growth for 2020 Q4 -
= (2020 Q4 Net Income)/(2019 Q4 Net Income) - 1
= ($34,925/$35,968) - 1
= -0.0290 or -2.90%

YoY growth for 2020 Q3 -
= (2020 Q3 Net Income)/(2019 Q3 Net Income) - 1
= ($27,322/$16,696) - 1
= 0.6364 or 63.64%

YoY growth for 2020 Q2 -
= (2020 Q2 Net Income)/(2019 Q2 Net Income) - 1
= ($41,952/$45,486) - 1
= -0.0777 or -7.77%

YoY growth for 2020 Q1 -
= (2020 Q1 Net Income)/(2019 Q1 Net Income) - 1
= ($17,314/$15,732) - 1
= 0.1006 or 10.06%

Topics: ACCA, CIMA, CPD, AAT, FRM