There’s a ton of ways to see how your client’s business is doing. One way to calculate performance is by looking at numbers year-over-year (YOY). A YOY comparison of figures is a high-level view that looks at how your client has grown over the past 12 months. To calculate YOY return, start by taking the current year’s net income and subtracting it from last year’s income. Then, divide your client’s current year net income by this difference. This return shows the growth or loss rate in net income between periods.
YOY comparisons are great for a couple of reasons. First, they eliminate any seasonality from your client’s company. When looking at numbers month to month, there might be holidays, weather, or other factors that swing business between such short time periods. Looking at things from a higher level on a year-over-year basis strips the differences that come up just because of timing. Second, they help you notice longer-term trends. Growth from one month to the next is great news, but is it sustainable? If your client has grown the past three years, this is much more impactful, easier to forecast, and insightful than growth over just three months.
YOY analysis can be put into practice for any numbers. Instead of limiting these calculations to net income, use the same practice for specific expenses or total expenses. The main hurdle to this practice is the need for consistent reporting and business operations. If your client acquired a company or launched a new product, the numbers will be accurate but a little skewed. This type of YOY analysis won’t be helpful in decision-making as there might be sharp spikes up and down that don’t reflect normal operations.
YOY analysis is a great way to see what sort of changes are happening over long periods of time. Track the changes from one year to the next to get a big picture view of how your client is doing.