Calculating Year-Over-Year Growth: Methods and Formulas

Calculating year-over-year (YoY) growth is a common method used to analyze changes in various financial, economic, or performance metrics over a 12-month period. It compares data from one year (the current year) to the same period in the previous year. The formula for calculating YoY growth is:

Here's a step-by-step guide on how to calculate YoY growth:

1. Gather Data: Collect the data for the metric you want to analyze for both the current year and the previous year. Ensure that the data covers the same time period, such as a specific month, quarter, or year.

2. Subtract Previous Year from Current Year: Subtract the value of the metric for the previous year from the value for the current year. This calculation represents the absolute change or the difference between the two years.

   • $\text{Absolute Change} = \text{Current Year Value} - \text{Previous Year Value}$

3. Calculate Percentage Change: To express the change as a percentage, divide the absolute change by the value for the previous year and multiply by 100.

   • $\text{YoY Growth} = \frac{\text{Absolute Change}}{\text{Previous Year Value}} \times 100$

4. Interpret the Result: The YoY growth percentage indicates how much the metric has grown or declined compared to the previous year. A positive percentage represents growth, while a negative percentage indicates a decline.

   • If YoY Growth > 0: It signifies growth or an increase compared to the previous year.
   • If YoY Growth < 0: It indicates a decline or decrease compared to the previous year.
   • If YoY Growth = 0: It suggests no change; the metric remains the same as the previous year.

5. Consider Additional Analysis: Keep in mind that YoY growth is a simple way to assess changes over a year, but it may not capture seasonal variations or shorter-term trends. Depending on your analysis goals, you may want to explore more granular data or use other techniques for a more comprehensive view of trends.

Example:Let's say you want to calculate the YoY growth in the revenue of a company. In 2022, the company had total revenue of $1,500,000, and in 2021, it had revenue of $1,200,000. Using the formula:

The YoY growth in revenue is 25%, indicating a 25% increase in revenue from 2021 to 2022.