Explore the importance of Year-Over-Year (YOY) and Quarter-Over-Quarter (QOQ) comparisons in evaluating a company's financial performance.
YOY
- Year-over-year (YOY) is a method of evaluating two or more measured events to compare the results at one period with those of a comparable period on an annualized basis
- YOY comparisons are a popular and effective way to evaluate the financial performance of a company
- Investors seeking to gauge a company's financial performance use YOY reporting
- YOY comparisons are popular when analyzing a company's performance because they help mitigate seasonality, a factor that can influence most businesses
YOY calculations are straightforward and usually are expressed in percentage terms. This would involve taking the current year's value and dividing it by the prior year's value and subtracting one: (this year)/(last year) - 1.
Year-over-year (sometimes referred to as year-on-year) comparisons are a popular and effective way to evaluate the financial performance of a company and the performance of investments. Any measurable event that repeats annually can be compared on a YOY basis. Common YOY comparisons include annual, quarterly, and monthly performance.
QOQ
- QOQ compares a change in performance between one fiscal quarter and the previous fiscal quarter.
- QOQ reflects short-term changes in various metrics and can indicate company performance over two quarters.
- Businesses that have income fluctuations or peak earnings at certain times may need to make seasonal adjustments or use a YOY metric to measure performance.