Year-Over-Year Growth Calculation: A Step-By-Step Guide
Fri | December 2022
Year-over-year (YOY) growth is a crucial metric for businesses of all sizes. Comparing the same period (month, quarter, or year) from one year to the next can provide valuable insights into your company's performance. This analysis helps identify trends, measure progress, and make informed decisions.
In this guide, we'll delve into the importance of YOY growth, how to calculate it accurately, and practical examples to illustrate its application. By the end, you'll have a solid understanding of leveraging YOY growth analysis to drive your business forward.
What is Year-over-Year (YoY) Growth?
Year-over-year growth (known as YoY) is a metric that measures the percentage change in a specific metric (such as revenue, profit, or customer base) between the same period in two consecutive years.
In other words, year-over-year growth is a performance indicator that compares an increase during a specific period to the same period in the previous year.
For example, if your business generated $100,000 in revenue in 2023 and $120,000 in 2024, your year-over-year growth rate would be 20%.
Key points:
Comparison: YoY growth compares the same period (month, quarter, or year) across different years.
Percentage change: It's expressed as a percentage to show the rate of growth or decline.
Business performance: It's a key indicator of overall business health and success.
Year-over-year growth is easy to calculate, and it's a helpful metric for analyzing your business's growth as the year ends. It also helps you make informed decisions about future strategies and resource allocation.
How to calculate Year-Over-Year Growth?
Year-over-year (YoY) growth measures how much a business has changed compared to the same period in the previous year. It's like comparing apples to apples but a year apart. But how do you calculate it?
To calculate YoY growth:
Choose what you want to measure: Decide if you're looking at sales, profits, or another key metric.
Gather your data: Collect the numbers for the current year and the same period last year.
Use a spreadsheet: Input your data into a spreadsheet program like Excel.
Calculate the difference: Subtract the previous year's number from the current year's number.
Find the percentage change: Divide the difference by the previous year's number and multiply by 100.
Remember: You can calculate YoY growth for any period, like months or quarters, if you compare the same period from one year to the next.
Year-Over-Year Growth Formula
Once you have all the information, you have to follow this formula:
(Current Year Earnings — Last Year's Earnings) / Last Year's Earnings x 100
It's important to mention that you only need to look at your balance sheet to discover the figures to enter into the year-over-year growth formula. If you don't have one, add up all your monthly or quarterly earnings from a single calendar year or fiscal year. You will get an accurate result if you compare the same length of time from each period.
Year-Over-Year Growth Calculation Example
Let's use a real-world example to show you what the growth rate calculation looks like. Let's say this company's monthly revenue was $2,500 in January 2022 and $2,000 in January 2021.
What is the growth rate or YoY? The formula looks like this:
(2,500 - 2,000) / 2,000 x 100 = 25%
The final percentage growth rate is 25%. This rate would demonstrate a company's steady, gradual growth. Although there may be seasonal variations, your business is expanding overall in this scenario.
So what do you do with this knowledge? Several things. For example, you can change your business plan to accelerate your growth rate. Calculating your year-over-year growth gives you a high-level view of your company's financial performance.
This information can help you make profitable decisions and make your company more attractive to potential investors, who can help you grow. You can incorporate additional KPIs and metrics into your analysis process to generate data-driven insights and action steps for your business.
Steps to Calculate YOY Growth in Excel
1- Organize Your Data:
Create an Excel spreadsheet with two columns: one for the current year's data and one for the previous year's data.
Ensure the data is aligned correctly, with corresponding periods (months, quarters) in both columns.
2- Calculate the Difference:
In a new column, subtract the previous year's value from the current year's value for each corresponding period.
The formula for this would be: =Current Year Value - Previous Year Value
3- Calculate the Percentage Change:
In a new column, divide the difference calculated in step 2 by the previous year's value.
The formula for this would be: =(Current Year Value - Previous Year Value) / Previous Year Value
Format the cells as percentages to display the results as percentages.
Example:
Month | Current Year (2024) | Previous Year (2023) | Difference | YOY Growth (%) |
|---|---|---|---|---|
January | $10,000 | $8,000 | $2,000 | 25% |
February | $12,000 | $9,500 | $2,500 | 26.32% |
Harness the Power of YoY Growth with One Park Financial
Year-over-year growth is key to a business's long-term success. Track key metrics and analyze trends. Then, make informed decisions to drive your company forward.
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Disclaimer: The content of this post has been prepared for informational purposes only. It is not intended to provide and should not be relied on for tax, legal, or accounting advice. Consult with your tax, legal, and accounting advisor before engaging in any transaction.