Year-over-year (YOY) comparisons compare one period of time (typically a year) to the same period of time the previous year. It is a useful measure for determining the rate of growth or decline in a business or industry because it accounts for seasonal fluctuations and eliminates the impact of inflation.
Assume a company’s sales in January 2021 were R100,000 and its sales in January 2020 were R80,000. To calculate the YOY growth rate, subtract January 2020 sales from January 2021 sales and divide the result by January 2020 sales. The YOY growth rate in this case would be 25% (20,000 / 80,000).
YOY can also be used to compare financial metrics such as EPS, net income, and revenue. For example, a company’s EPS in 2020 could be R1 and R1.25 in 2021. The YOY growth rate in this case would be 25% (0.25 / 1).
In South African finance, YOY is commonly used to evaluate the performance of companies and industries. It is a metric that is frequently used in financial statements, investor presentations, and analyst reports.
One of the most significant advantages of using YOY is that it enables a more accurate comparison of a company’s performance over time. If a company’s sales increase from R100,000 in 2020 to R120,000 in 2021, it may be tempting to conclude that the company is doing well. However, if the rate of inflation in 2021 was 10%, the company’s sales would have increased by 10% in real terms (that is, after adjusting for the impact of inflation). We can make a more accurate comparison of the company’s sales from one year to the next by using YOY, which takes inflation into account.
Another benefit of YOY is that it helps to mitigate the effects of seasonal fluctuations. A company that sells outdoor equipment, for example, may have higher sales in the summer than in the winter.
Using YOY, we can compare sales during the summer months of 2021 to sales during the summer months of 2020, rather than sales during the entire year of 2021 to sales during the entire year of 2020. This contributes to a more accurate representation of the company’s performance over time.
There are numerous examples of YOY usage in South African finance. Here are a couple of examples:
EPS is a financial metric that displays a company’s earnings per share of stock. It is calculated by dividing a company’s net income by the number of shares outstanding. For example, if a company has a net income of R100,000 and 10,000 shares of stock outstanding, its EPS is R10.
To assess a company’s performance over time, it is common to compare its EPS on a year-over-year basis. For example, a company’s EPS in 2020 could be R8 and R10 in 2021. The YOY growth rate, in this case, would be 25% (2 / 8). This means that the company’s earnings per share increased by 25% between 2020 and 2021.
Revenue is the total amount of money earned by a company from the sale of its products or services. It is an important financial metric for assessing a company’s performance.
To gain a better understanding of a company’s revenue over time, compare its revenue year over year. For example, a company may have R1 million in revenue in 2020 and R1.2 million in revenue in 2021. The YOY growth rate in this case would be 20% (0.2 / 1). This would imply that the company’s revenue increased by 20% between 2020 and 2021.
Net income is the total earnings of a company calculated by subtracting its expenses from its revenue. It is an important financial metric for determining a company’s profitability.
To gain a better understanding of a company’s profitability over time, compare its net income year over year. For example, a company could have a net income of R500,000 in 2020 and R600,000 in 2021. The YOY growth rate in this case would be 20% (100,000 / 500,000). This means that the company’s net income increased by 20% between 2020 and 2021.
Year-over-year (YOY) comparisons are useful for comparing one period of time to the same period of time the previous year. It is widely used in South African finance to assess the performance of companies and industries, and it aids in smoothing out the effects of seasonal fluctuations as well as removing the impact of inflation. We can get a more accurate picture of a company’s performance over time and make more informed investment decisions by using YOY.
This website uses cookies.
