HomeProductsAccountingYOY Growth: Get to Know the Benefits and How to Calculate It!

YOY Growth: Get to Know the Benefits and How to Calculate It!

Growth is one of the most important things for the long-term survival of your business. The company’s growth becomes essential because it can help your assets management, attract new talent, and fund investments. Without sustainable growth, the company’s operations will stagnate and decrease quality standards for products or services in the company. Then, how do you measure business success over a long time scale? The answer is Year-Over-Year (YOY) growth.

YOY meaning is a financial analysis that businesses use to gain insight into a company’s success. YOY means to compare the financial data of a particular period with the same period in the previous year. This analysis can see if your business has positive, stagnant, or negative growth during the period. Therefore, you need to understand the benefits, the formula, and the importance of year-over-year for your business. Check out the explanation in the following article!

YOY

What is YOY (Year-Over-Year) Growth

YOY growth is a form of financial analysis that allows you to evaluate a particular period of a company’s performance. The monitoring by comparing the level of revenue growth from the last year with the current one. You can implement a YOY growth formula that presents financial performance as a percentage, up to quarterly and monthly revenues. The YOY formula effectively presents a clear matrix for the company’s growth during the fiscal year.

YOY growth can measure many aspects of your company’s growth, such as revenue, conversions, average sales value, and other matrices. Year-over-year performance can allow you to gauge whether a company’s financial performance is improving, static, or deteriorating. For example, you can read that certain businesses reported increased revenue for the fourth quarter over the past four years. Therefore, comparing year over year is a popular and effective way to evaluate your company’s financial performance.

The Benefits of YOY Growth

The benefits of Year over year

You will get many great benefits when accurately calculating business growth with YOY growth. YOY can show the development of the company and the financial prospects of your business. There are the following reasons that make YOY calculations beneficial for your business:

Precise and accurate performance

Year-over-year analysis can provide more accurate information for monthly revenue growth, especially with seasonal products or services. Comparing the same month in different years allows you to draw accurate comparisons despite seasonal traits. YOY growth also clearly and accurately shows the long-term results of your business efforts rather than using a monthly matrix. You can also use HashMicro’s most integrated ERP software to get fast and accurate company data.

Simple tracking and counting

The second benefit of year-over-year is simple data tracking and calculation. YOY offers simple calculations that you can do easily. This calculation makes it ideal for more straightforward business analysis for small businesses. In addition, year over year results are also in the form of percentages that provide a clear understanding, thus providing more accessible results. Comparing a particular month with this calculation can smooth out the data and make it look more reliable for investors.

Better understand what improvements can be made

Another benefit of YOY is understanding the improvements your business will need. Especially your business that has operated for more than a year. The Data from YOY can help you in directing business strategies. Furthermore, YOY presents data that allows you to see the company’s business results, as well as the improvements. For example, one of the departments in your company has underperformed, and then your focus is on improving that department.

Also read: Definition and Important Role of Human Capital in Companies

How to Calculate YOY Growth

You can calculate year-over-year growth easily because it only requires specific data collection, which is then put into a simple equation to get the results. Here are the steps you need to take:

Determine the period you want to compare

The first thing you need to do in calculating YOY growth is to determine the period you want to compare and evaluate. Choose the same timeframe, for example, the fourth quarter of 2020 and the fourth quarter of 2021. You can compare this year’s monthly data with last year to show the business growth to potential investors.

Retrieve company data at the specified time

The second step is to take data from the company in the period you have specified before. You can find all the data you need on your company’s business balance sheet. If unavailable, you can compare your monthly or quarterly income from their respective fiscal years. Keep in mind that you should compare the same timeframe for each period.

Calculate with YOY formula

After determining the timeframe and collecting company data, the next step is to calculate your data using the YOY growth formula. Here is the formula for calculating year-over-year growth:

How to calculate YOY
Source: learnbusinessconcepts.com

How to calculate year-over-year growth is to take income from the current year and subtract it from the previous year’s income. Then, divide the difference by the previous year’s income and multiply that answer by 100. The result will be expressed as a percentage that will show growth year-over-year.

Analysis and evaluation of total profits

The last step is to analyze and evaluate your company’s total profits. You can use numbers from YOY calculations to show investors that your business is growing and performing well. You can also use those numbers to inform your plans in the future. If the numbers are negative, you can use them to inform improvements to help your business perform better next year.

The Importance of YOY Growth for Small Businesses

The importance of Year over year for small business

If you own a small business, you may find it harder to do an analysis that shows your business is performing well. Such reasons can be challenges and obstacles to receiving investments or other financial support. Year-over-year growth is essential for better company performance for both large and small businesses. Here are some reasons for YOY growth for small businesses:

Evaluate which ones require more funding

You can use YOY calculations to evaluate the success of your business area, such as clothing store areas in the retail industry. You can customize which parts or products require more funding or reduction for business improvement. This calculation provides an objective view of overall performance. Thus, helping to determine the success of the product you are selling.

Understand business efficiency

Looking at the growth of your business year over year can help you determine how efficient the company is. For example, you can use YOY growth to measure the number of items delivered during the same month in two years. If it has increased significantly, then this shows that your efficiency has increased. YOY calculation provides an opportunity to implement changes in improving the efficiency of your business than last year.

Negotiating materials for product prices

YOY growth is essential for small businesses because you can use the calculation to negotiate product prices with vendors. Using YOY calculations can help you determine whether the price of a product you pay is reasonable or not. For example, your craft business buys paper in bulk from other companies. Then you can use year over year growth to assess whether you’re selling enough paper to pay. YOY growth can help you negotiate prices with vendors so that you can pay different amounts for bulk supply.

Also read: Know your Company’s Efficiency by ROA Calculation

The Importance of YOY Growth for Seasonal Businesses

If you have a seasonal business, using a month-to-month analysis can make your company look less successful. Instead, using YOY calculations can give you a comparison of specific periods. Thus, you will see the performance of your business during a successful season. Hence, why is year-over-year growth significant for seasonal businesses?

YOY growth is important because it eliminates seasonal effects automatically. Comparing specific months or quarters can improve your data when you use growth year after year. YOY growth makes it seem more reliable to investors. For example, retail companies will probably have above-average sales in the fourth quarter due to holiday shopping. Comparing sales between the third and fourth quarters may look like the company is growing. However, this increase is only seasonal. Instead, comparing retail sales figures with the fourth quarter of last year would show how your seasonal business improved. Therefore, YOY growth becomes an essential part of assessing seasonal business performance.

Also read: Sales Promotion is the Right Promotional Action to Lure Buyers

Conclusion

YOY

Year-Over-Year (YOY) Growth is a type of financial analysis that allows you to track and evaluate a company’s performance over a specific period as a business owner. The advantages of YOY calculations include clearer and more accurate performance results, simpler tracking and calculations, and a better understanding of where your business can be improved. As a result, YOY growth is critical for those of you who run small and seasonal businesses.

In calculating YOY growth, you may have difficulty retrieving the previous year’s data that you will compare quickly and in real-time. This will undoubtedly impede your company’s financial performance. If this occurs, your company will find it difficult to evaluate its finances, resulting in poor decision-making that could lead to a loss. As a result, you’ll need  the Best Accounting System in Singapore to make it easier to evaluate your company’s finances. Accounting software from HashMicro offers numerous advantages, including reduced calculation time, real-time data, and high accuracy. The use of this software will make it easier to calculate your YOY growth, which will increase the company’s profitability.

Contact us right away for the best deal and a free demo!

Interest in getting savvy tips for improving your business efficiency?

Femri Resdifianti
Femri Resdifianti
Femri is an explorer who sails through all kinds of seas of writing in search of a treasure trove of new knowledge. She likes to express her complicated thoughts in writing - a content writer at HashMicro.

LEAVE A REPLY

Please enter your comment!
Please enter your name here

Looking for software system to improve your business efficiency?

Get a free consultation with our business expert by filling in this form!

Rachel-Panjaitan

Chelsea
Typically replies within an hour

Chelsea
Looking for a Free Demo?

Contact us via WhatsApp and let us know the software you are looking for.

Claim up to 80% Productivity Solution Grant for various HashMicro Software!
1:40
+6587776207
×
Book a Demo by WhatsApp