Yoy growth is a kind of financial analysis that most business owners use to check and evaluate their performance in a specific period. Typically, this method compares the revenue growth rate from last year to the current year. Yoy growth formula can also apply to evaluate financial percentage performance of short duration like quarterly and monthly revenues.
Moreover, Yoy growth is one of the many other formulas that a company or business can use to evaluate its performance and other matters like financial statements and the company’s balance sheets. Year over year growth formula effectively presents accessible and comprehensive metrics of a company’s growth in a year.
How to calculate yoy (year over year) growth?
Yoy growth measuring formula is very simple. Suppose you are a business owner and choose your earnings from a particular period of the previous year, like last quarter or first quarter, etc. Now, subtract the first-quarter payments of the ongoing year of the prior year’s earnings. For instance,
(Current year, last quarter earnings) – (last year’s same quarter earnings) = ( year-over-year growth).
Next, find out the difference with the last year’s earnings to conclude. Follow the following rule to find out this. For example,
(Yoy growth)/ (last year’s fourth-quarter earnings) * 100 = (growth percentage rate).
Some advantages of yoy growth
Many methods are here to analyze your business’s year-over-year growth rate. However, year over year growth rate has the following advantages.
- It is the best direction for business strategy and to evaluate other matters regarding production and manufacturing. However, this strategy can help you better understand all these problems.
- Yoy growth formula indicates longer results about your business efforts, and it is far better than monthly or quarterly metrics. In addition, this information is precious for lenders, bankers, and other decision-makers who look for simple statistics on your company’s business. However, lenders will mainly analyze your year-over-year growth to process loans.
- Due to fluctuations in the different economic situations, yoy growth formula is considered the best option for seasonal businesses. In addition, it presents a more accurate picture of seasonality—the yoy formula help to find out the factors that affect long-term growth. For example, if one year’s growth is strong, followed by weak growth in the next year, this needs to be addressed immediately.
Some drawbacks of year-over-year (yoy) growth
Nothing is perfect in business, and we need to apply different formulas to get the best and most accurate results for our capabilities. Moreover, we make a plan for the future based on these findings. Therefore, everyone wants to have a full audit of performance in business. However, yoy growth formula has some weak points that are the following:
- The yoy procedure is insufficient to highlight short-term changes.
- It can only track annual numbers to get accurate results, so its criteria are limited.
- A new or startup business cannot get any benefit from this formula. We cannot get the previous year’s record to apply this.
Conclusion
We often use different strategies in our business to find our incapability. This effort aims to find out the best points to make our company vaster and loss-free. However, we cannot be successful in our actions all the time. Despite all this, year-over-year growth is a simple formula to evaluate your business’s growth.
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