Year-over-Year Growth

Year-over-year growth, often written as YoY, is used to remove the effect of seasonal patterns. Many businesses have predictable busy and quiet periods. A toy retailer always sells more in December than in July, so comparing December with the previous month would be misleading. Comparing it with the previous December gives a fairer view.

The calculation is the current figure minus the figure a year ago, divided by the figure a year ago. If sales in the third quarter were 1.38 million this year and 1.2 million in the third quarter last year, year-over-year growth is 15%.

Year-over-year comparisons are used for sales, profits, customer numbers, prices and economic data such as inflation and employment.

They have limitations. If the period a year earlier was unusual, such as a quarter affected by a one-off event, the comparison can give a distorted result. Analysts sometimes compare with two years earlier, or look at longer trends, to avoid being misled by an unusually weak or strong base period.