What is YOY? Characteristics and meaning of the YOY index

If you have ever played securities or are interested in finance, regularly follow magazines and financial reports, you will have seen the term YOY. What is year on year? The following article Filipinance.com introduces you to this information.

What is YOY (Year On Year) concept?

YOY is an index used to compare financial results in the same time period, widely applied in the field of securities and finance.

By understanding the yoy index, you can know the growth or decline of an organization, company or the whole economy of a country at a certain time.

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Features and meanings of YOY index in finance, securities

Knowing the characteristics and meaning of YOY helps you understand its importance to the market economy. As follows:

Features of YOY

YOY helps you have an overview and evaluate the operation of your business at each stage. For example, in the 2021 financial statements of enterprise X, the movements of each period are clearly shown.

In 2020 there are also periods like 2021. Based on that, it is possible to assess subjective or objective factors affecting the growth of enterprises.

Meaning of YOY

YOY is also known as growth index, which is an important indicator in financial statements. It helps you when reading financial statements to visualize many business problems of the business.

  • Through the YOY index, businesses can assess their business situation.
  • Compare growth by month, by year, by quarter.
  • Assess the business profit, financial performance of the business unit is bad or good.
  • Reviewing and evaluating YOY to evaluate the company’s investment performance, towards sustainable development.

What is the effect of YOY index calculation?

The YOY index is highly appreciated by investors, helping them come up with a development strategy. Here are some of the effects:

Capturing business situation adjusting strategy

  • Help businesses identify and analyze business situations. From there, it is possible to devise a sales strategy appropriate to the actual situation.
  • Offer attractive promotions and offers.
  • Change the design, attract the attention of customers.
  • Promote advertising campaigns on media.
  • For businesses with stagnant growth, there must be a new direction.

Assessing the position of the enterprise

Many businesses operate in the same field, but profits are not the same. Through the YOY index you can know where the business is standing in the market.

In addition, based on the YOY index, you can make an initial judgment about the prosperity or decline of the business. If the market is competitive, you must change your strategy to gain a foothold in the hearts of customers.

Make the right investment decision

By knowing what YOY is, you can make the right decisions about choosing a business partner. Based on the annual financial statements, it is possible to analyze and identify the development of the business.

Of course, no one invests in businesses that are about to go bankrupt or lose money. Investing in businesses with good growth helps businesses get viable results. To know if the company is profitable, it is definitely necessary to go through the YOY index.

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See also: What is monetary policy? The role of monetary policy in the economy

Advantages and disadvantages of comparing the YOY  index

The pros and cons below will also help you better understand the YOY indicator.

Advantages

The process of comparing this index should ignore the seasonality in order to bring the most objectivity.

YOY also helps analyze and evaluate business development more quickly to give final results.

Calculating and comparing the YOY index does not need to use a computer, but it can still give accurate numbers.

Disdvantages

If the growth time is negative then it will be a meaningless result.

If you only calculate YOY by year, you will not see monthly or quarterly fluctuations.

Limited information is provided as only mid-year indicators are compared.

Although YOY has many meanings, the trend is observed at only one stage of calculation.

Latest updated YOY index calculation guide

Whether YOY is an important economic growth indicator for businesses and the country’s economy. But how to calculate YOY is not as difficult as you think, the calculation is also simple.

Step 1: Take this year’s revenue minus the previous year’s revenue in the same period.

Step 2: Divide this year’s profit difference by last year’s revenue to calculate this year’s growth rate.

Step 3: Convert the result in step 2 to the form of %, from which the Y index can be calculated.

Some examples of how to read the YOY index in a report

The following examples can be used to understand how to read the YOY ratio in financial statements. As follows:

Example 1:

Retail sales in the first 5 months were 206 million, up 3% over the same period last year, that is, the first 5 months of this year, up 3% compared to the first 5 months of last year.

Accordingly, the year before that, retail sales in the first 5 months reached 200 million (206 -200 million = 6 million), an increase of 6 million, corresponding to a growth rate of 6/206 = 0.03 million, equivalent to 3%

Example 2:

A Youtube channel has 8,000 views in the first week of February, down 25% over the same period, that is, the number of views in the first week of January is higher than the first week of February.

So in the first week of January, the number of views reached 10 thousand views (February dropped to 2000 views) 2000/8000 = 0.25 views and accounted for 25%.

Conclusion

From this information you must know what YOY is? As well as the typical meaning of YOY. Understanding and comparing YOY indicators can help businesses or investors make the most appropriate business strategies.

See also: What is the exchange rate? Classification and role for the economy

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