What is year-over-year growth?

Definition

Year-over-year growth is how much a line moved versus the same period a year earlier, stated as a percent. On the books, this is a reading of two periods a year apart, often shortened to YoY, not an account and not a posted line.

Where it shows up

P&L: Related to the percentage change versus the same period a year earlier.

Balance Sheet: Related to the percentage change in a balance versus a year earlier.

Cash flow: Related to the percentage change in cash versus a year earlier.

See also: Month-Over-Month Growth · Seasonality · Revenue

When you look at two Income Statement packs a year apart, this reading is the percent a line moved. Revenue of $30,000 this June versus $25,000 last June is a 20 percent increase.

The Balance Sheet can be read the same way. Cash, inventory, and payables each have a dated balance, and the percent change is this date versus the same date a year earlier.

Cash flow can use the same percent. If cash from operations was $8,000 last June and $10,000 this June, that is a 25 percent year-over-year increase.

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

Owners use it to see whether this June is actually bigger than last June, not just bigger than May. A busy season can look huge month to month and still be flat versus last year.

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

How it works

Take this period's amount and the same period last year. Subtract last year from this year, then divide by last year.

Multiply by 100 to state it as a percent. ($30,000 minus $25,000) divided by $25,000 is 0.20, or 20 percent.

A fall uses the same math and comes out negative. $20,000 after $25,000 is a 20 percent year-over-year decrease.

June versus last June is year-over-year. June versus May is a month-to-month reading, which still includes the seasonal jump that this comparison is meant to strip out.

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 versus last year.

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

A tiny base year makes the percent look huge. $1,000 to $2,000 is 100 percent, and that is still only $1,000 of extra activity.

The general ledger already holds both years. 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 year minus last year, divided by last year.

A budget is a plan, not last year's actual. Year-over-year growth compares two actuals a year apart, not actual versus plan.

Example

An ice cream shop recorded $30,000 of June revenue this year and $25,000 last June. The change is $5,000, and $5,000 divided by $25,000 is 20 percent.

June is a 20 percent year-over-year increase. The Income Statement still shows $30,000 of this June's revenue; 20 percent is the reading next to those two Junes.

If May was $12,000 and June is $30,000, the month-to-month jump is large because summer started. Year-over-year still asks whether this June beat last June, which is the cleaner seasonal test.

If a second window opened this spring, the 20 percent still measures the change. Flux analysis would explain the extra window; the percent would not.

If July this year matches July last year, year-over-year growth is 0 percent. The shop is as busy as last summer, even if July beat June.

The owner can run the same math on cash. $9,000 of June cash after $7,500 last June is a 20 percent year-over-year increase in the cash line.

Common mix-ups

Year-over-year growth is not month-over-month growth. Month-over-month growth compares adjacent months and still includes the seasonal pattern; year-over-year growth compares the same month a year apart.

Year-over-year growth is not seasonality. Seasonality is the predictable high and low pattern across a year; this reading is one period versus the same period last year.

Year-over-year growth is not a forecast. A forecast is an updated projection of where the numbers are heading; this reading only compares two actuals that already happened.

Related terms

• Month-Over-Month Growth: The change from one month to the next, expressed as a percentage.
• Seasonality: The predictable pattern of higher and lower periods across the year.
• Revenue: The total value of goods and services the business earned in a period.
• Trailing Twelve Months: The most recent twelve months of results, regardless of fiscal year.
• Compound Annual Growth Rate: The smoothed average yearly growth rate across several periods.
• Year-To-Date: Results accumulated from the start of the fiscal year to the current date.
• Flux Analysis: Explaining why each account moved compared with the prior period.
• Forecast: An updated projection of where the numbers are actually heading.