Year-Over-Year (YoY): Meaning and Examples in Financial Analysis and Financial Models

Year-Over-Year (YoY) Definition: In financial analysis, the Year-Over-Year (YoY) growth compares a company’s performance in its most recent quarter or month to its numbers from the same quarter or month in the previous year.

YoY allows for an annualized comparison, such as between the second half of this calendar year and the second half of the previous year. By comparing a company’s performance to its performance in the same period of the previous year, you can see how its operations have changed over 12 months.

Year-Over-Year growth is more useful than quarter-over-quarter (QoQ) growth because QoQ numbers reflect seasonality.

In other words, if a company earns the bulk of its sales in Q4 each year (October – December), comparing its Q4 sales to its Q3 sales is deceptive because Q4 will always be stronger.

It’s much more useful to compare the Q4 numbers in one year to the Q4 numbers in the previous year so that you’re comparing “strength” to “strength.”

Year-Over-Year comparisons are common for quarterly and half-year periods, but you’ll also see them used to measure monthly performance.

Files & Resources:

• EasyJet – Sample Year-Over-Year (YoY) Growth Rate Calculations from Full Model Excerpt (XL)

Year-Over-Year Calculation Example: How Do You Calculate YoY Growth?

You can use this formula to make the calculations:

Year-Over-Year Growth = Current Year’s Value / Previous Year’s Value – 1

Here’s an example for EasyJet, a highly seasonal airline based in the U.K. (featured in our Advanced Financial Modeling course):

If we looked at the sequential growth rates instead, they would be nearly useless because of the strong seasonality in EasyJet’s business:

Measuring YoY performance lets investors gauge whether a company’s financial performance is improving or worsening, ignoring the effects of seasonality.

What Are the Most Common Year-Over-Year (YoY) Metrics?

You can calculate YoY for “flow” metrics that measure a financial result over a period:

• Revenue
• EBITDA
• Net Income

But you can also use it for operational metrics and key performance indicators (KPIs), such as:

• Units Sold
• Passengers
• Homes Built
• Miles/Kilometers Flown

For example, we can calculate the Year-Over-Year (YoY) growth for Available Seat Kilometers (ASK), a key operational metric that measures overall “capacity,” for EasyJet:

Year-Over-Year does NOT make much sense for Balance Sheet metrics such as Cash, Debt, or Inventory that measure the value of items at specific points in time.

For example, you can calculate the YoY growth for a company’s Cash balance, but it’s not particularly useful because you normally care more about how the Cash balance compares to the company’s Revenue and Expenses over this period.

Finally, governments also use YoY to describe yearly changes in economic measurements such as an economy’s gross domestic product (GDP), inflation, the money supply, and the unemployment rate.

Again, the idea is to remove the effects of seasonality: If a “tourist economy” is always strong in Q3 due to summer travel, you should compare its Q3 GDP to the Q3 GDP in previous years rather than the Q2 or Q1 GDP.

Why is Year-Over-Year (YoY) Important in Financial Modeling?

As discussed above, when analyzing the financial statements, you always want to remove the effects of seasonality and focus on similar periods so you can compare “strength” to “strength” and “weakness” to “weakness.”

As shown in the EasyJet examples above, many airlines are seasonal; other seasonal industries include retail, agriculture, and education.

In financial models, you often use these Year-Over-Year (YoY) growth rates to forecast revenue and KPIs for seasonal companies when you’re working with monthly, quarterly, or half-year models.

You even use YoY growth rates for marginally seasonal companies, such as building material suppliers. Here’s an example for BMC Stock Holdings:

This specific company is not that seasonal, but the YoY growth rates are still more appropriate here because Q3 and Q4 tend to be the company’s strongest quarters.

Therefore, we want to forecast each year’s Q3 and Q4 revenue based on the previous year’s Q3 and Q4 revenue.

In other contexts, such as valuations (e.g., comparable company analysis), M&A models, and LBO models, the Year-Over-Year concept is less relevant because you’re not necessarily building new forecasts.

If you’re mostly gathering data or assembling two companies’ financials, such as in a merger model, you need to understand the YoY growth rate concept but won’t necessarily use it in the model.

Therefore, YoY growth rates are most relevant in 3-statement models based on monthly, quarterly, or half-year periods rather than annual ones.

Variations of Year-Over-Year (YoY) Growth Rates

In addition to Year-Over-Year, several other metrics relate to sequential growth or growth in the year to date:

• Month-Over-Month (MoM): This metric compares a specific metric’s performance in the current month to the same metric in the previous month, such as March revenue vs. February revenue. This metric is useful when a company grows at about the same rate each month and has minimal seasonality.
• Quarter-Over-Quarter (QoQ): Quarter-Over-Quarter compares a metric in one quarter, such as Q3 of this year, to the same metric in the previous quarter of this same year (Q2 in this case). Again, this is fine for companies with steady/stable growth rates and minimal seasonality.
• Year-to-Date (YTD): Year-to-Date (YTD) growth is based on a metric from the beginning of the current year (January 1^st) up through the current date vs. the same metric in that same period from the previous year.

For example, if the current date is April 30^th, 2024, you could calculate YTD Revenue Growth with:

• YTD Revenue Growth = Revenue from January 1 to April 30^th, 2024 / Revenue from January 1 to April 30^th, 2023

YTD gives you an idea of how much “progress” has been made toward specific growth goals.

For example, if the company aims for 15% growth for the entire year but has only grown 5% so far (in the first 4 months), it is clearly tracking below this growth goal.

By contrast, YoY growth is more about measuring the trends in one specific period of this year compared with the previous year – not the progress toward a specific goal.