Definition of Year over Year
Year over year calculates the statistical variations from one time period mostly a quarter or a month, against the same time period of the previous year. It is an effective method of looking at the performance and for comparing performance of different periods.
Explanation of Year over Year
The major benefit of this tool is that it automatically denies the effect of seasonality.
For instance, the employment/ hiring of teachers decline during June each year because of vacations. A month-to-month comparison would show a startling drop-off if you didn’t know to take the seasonality into consideration.
The major disadvantage of year-over-year is that it does not provide full picture of performance. It is necessary to look at a month-to-month performance in addition to year-over-year.
How to Calculate the Year-Over-Year
Following are the step for calculating year-over-year gain or loss:
- Subtract previous years’ number from current years’ number.
- Divide the difference by previous year’s number to calculate year-over-year growth or decline rate.
A firm ABC’s fiscal year began on January 1 and that today is March 31. In this time period, firm ABC’s revenue is given below:
The revenue increased by 50% from 2011 to 2012.