What is month-over-month growth?

Definition

Month-over-month growth is how much a line moved from last month to this month, stated as a percent. On the books, it is a reading of two months of activity, often shortened to MoM, not an account and not a posted line.

Where it shows up

P&L: Related to the percentage change in a line from one month to the next.

Balance sheet: Related to the percentage change in a balance from one month to the next.

Cash flow: Related to the percentage change in cash from one month to the next.

See also: Year-Over-Year Growth · Flux Analysis · Revenue

When you look at two monthly Income Statement packs, this reading is the percent a line moved from last month to this month. Revenue from $10,000 to $12,000 is a 20 percent increase.

The Balance Sheet can be read the same way. Cash, receivables, and payables each have a month-end balance, and the percent change is this month versus last month.

Cash flow can use the same percent. If cash from operations was $4,000 in May and $5,000 in June, that is a 25 percent month-over-month increase.

The percent is not printed as its own ledger line. It is calculated from two months you already have.

Owners scan it to see whether the shop sped up or slowed down. A 20 percent jump is a signal; the statements still show the dollar lines underneath.

Operating expenses can be read this way too. Rent may be 0 percent month-over-month while produce cost moves with sales.

How it works

Take this month's amount and last month's amount. Subtract last month from this month, then divide by last month.

The percent is built in three steps:

• Subtract last month from this month
• Divide that difference by last month
• Multiply by 100 to state it as a percent

($12,000 minus $10,000) divided by $10,000 is 0.20, or 20 percent.

A fall uses the same math and comes out negative. $8,000 after $10,000 is a 20 percent month-over-month decrease.

Use adjacent months. May to June is month-over-month; June this year versus June last year is year-over-year growth, which is a different comparison.

The percent is the change, not the explanation. Flux analysis is the written reason the line moved; this reading is only the size of the move as a percent.

Do not annualize the percent. A 20 percent jump in one month is not a 240 percent year.

A tiny base month makes the percent look huge. $100 to $200 is 100 percent, and that is still only $100 of extra activity.

If last month was zero, the percent is not defined. State the dollar change instead, and do not divide by zero.

The general ledger already holds both months. You are reading two issued accounting period totals, not posting a new journal entry.

Net income can use the same percent. The method does not change: this month minus last month, divided by last month.

Example

A juice bar recorded $10,000 of May revenue and $12,000 in June. The change is $2,000, and $2,000 divided by $10,000 is 20 percent.

June is a 20 percent month-over-month increase. The Income Statement still shows $12,000 of June revenue; 20 percent is the reading next to those two months.

If July comes in at $12,000 again, month-over-month growth is 0 percent. The level stayed put even though the shop is busier than May.

If a new location opened on June 1, the 20 percent still measures the change. Flux analysis would explain the extra store; the percent would not.

If August falls to $9,000, the June-to-July hold at 0 percent is no longer the story. August versus July is a 25 percent decrease.

The owner can run the same math on cash. $6,000 of June cash after $5,000 in May is a 20 percent month-over-month increase in the cash line.

Common mix-ups

Month-over-month growth is not year-over-year growth. Year-over-year growth compares a period with the same period a year earlier, which strips out a seasonal pattern that month-over-month still includes.

Month-over-month growth is not flux analysis. Flux analysis explains why the account moved; this reading is the percent it moved.

Month-over-month growth is not year-to-date. Year-to-date is a running total from fiscal-year start; this reading is one month versus the prior month.

Related terms

• Year-Over-Year Growth: The change versus the same period a year earlier.
• Flux Analysis: Explaining why each account moved compared with the prior period.
• Revenue: The total value of goods and services the business earned in a period.
• Seasonality: The predictable pattern of higher and lower periods across the year.
• Year-To-Date: Results accumulated from the start of the fiscal year to the current date.
• Forecast: An updated projection of where the numbers are actually heading.
• Run Rate: Annualizing a recent period's results as a rough forward estimate.
• Budget Versus Actual: The comparison of planned amounts to what actually happened.