Year over year (YOY) is a method of evaluating two or more measured events to compare the results at one time period with those of a comparable time period on an annualized basis. YOY performance is frequently used by investors seeking to gauge whether a company's financial performance is improving or worsening. For example, a business may report its revenues have increased for the third quarter on a YOY basis for the last three years, or a mutual fund that returned 50% last year may have an average YOY return of 12%, which takes into account each annual return since the fund's inception.
YOY measurements facilitate the cross comparison of sets of data. For a company's first-quarter revenue using YOY data, a financial analyst or investor can compare years of first-quarter revenue data and quickly ascertain whether a company’s revenue is increasing or decreasing. For example, in the first quarter of 2016, Barrick Gold Corporation’s earnings were $1.93 billion; year over year, the company reported revenues of $2.25 billion. This shows Barrick Gold’s revenue has decreased from comparable, annual time periods. This YOY comparison is also valuable for investment portfolios. Investors like to examine YOY performance to see how performance changes across time.
YOY comparisons are popular when analyzing a company's performance because they help mitigate seasonality, a factor that can influence most businesses. Sales, profits and other financial metrics change during different periods of the year due to the fact most lines of business have peak and low demand seasons. For example, retailers have a peak demand season during the holiday shopping season, which falls in the fourth quarter of the year. To properly quantify a company's performance, it makes sense to compare revenue and profits year over year. The fourth-quarter performance in one year should be compared to the fourth-quarter performance in other years. If an investor looked at a retailer's results in the fourth quarter versus the prior third quarter, it may appear a company is undergoing unprecedented growth when it is actually seasonality that is influencing the difference in the results. Similarly, if the fourth quarter was compared to the following first quarter, it would appear the business had a dramatic decline when this could also be a result of seasonality.