Month-on-month and year-on-year comparisons are both common comparative analysis methods for financial indicators.
Month-on-month growth includes: Month Over Month (or Month On Month) and Quarter Over Quarter (or Quarter On Quarter).
Year-on-year refers to the year-on-year comparison, which is called Year Over Year or Year On Year in English.
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The biggest difference between the three is the different values used for calculation:
The monthly month-on-month comparison uses monthly data of different spans, for example, this month is compared with last month, or a compound calculation is made based on the values of the most recent months.
The quarterly comparison is to compare the values of this quarter with those of the previous quarter.
Year-over-year comparisons use data from the same periods in two years, such as comparing the first quarter of this year with the first quarter of last year.
Whether it is month-on-month or year-on-year, the comparison method is to subtract the previous value from the latter value, then divide it by the previous value, and convert the result into a percentage value, or divide the latter value by the previous value, subtract 1 and then convert it into a percentage value.
Relatively speaking, the month-on-month analysis results are more detailed and can be used to discover more subtle changes through calculations. For example, it can be used to measure various monthly data such as turnover, unemployment rate, and consumer price index.
The year-on-year growth rate takes into account the impact of a longer time span, while removing some detailed influencing factors, such as quarterly factors. It is usually used to consider more macro data such as annual profits and GDP. Of course, it can also be used to measure data such as unemployment rates to examine the significance of numerical changes from different angles.
What is the difference between MoM, QoQ and YOY?
Among the three ratios, MoM and QoQ are month-on-month, called “month-on-month” and “quarter-on-quarter”, which are used to compare consecutive single-month values and single-quarter values respectively.
YoY is year-on-year, and can compare single month values, single quarter values or single year values, but the time span is a whole year, that is, compare a certain month, or a certain quarter, or a whole year in the two years before and after.
1. Month-on-month (MoM)
Month-on-month calculation is to calculate the percentage of the change in value to the value of the previous month.
Monthly comparison can be used to analyze various more detailed numerical changes, such as stock price growth, monthly sales revenue of enterprises, website visits, etc. Because monthly comparison values are produced every month, there will be dense monthly comparison values in the process of operation or economic development. After being produced into data analysis charts, the development process of economic activities can be observed more intuitively. At the same time, monthly comparison is very suitable for analyzing the business progress of start-ups and timely obtaining the effectiveness of various new strategies, but for mature companies, it is more meaningful to use quarterly comparison or year-on-year comparison.
The monthly month-on-month value fluctuates greatly as the business progresses and is easily affected by various events, such as holidays, natural disasters, etc., which will directly affect the calculated value of the monthly month-on-month value.
Therefore, analysts can summarize some information by tracking and analyzing the monthly month-on-month values, such as when sales will surge in the year and when inventory needs to be expanded in advance in future development.
Some people believe that the basic monthly growth rate cannot accurately estimate the return on investment, and therefore hope to obtain the month-on-month growth rate through data with a longer time span to estimate the future return. At this time, they will use the compound monthly growth rate (CMGR). After obtaining the CMGR, investors can use a specific company to estimate the possible future returns.
The calculation method of CMGR is:
CMGR = (value of the last month in the cycle)^ (1/month difference) / (value of the first month in the cycle) – 1
For example, using CMGR to calculate the compound monthly growth rate of new paying members of a company in the past 5 months:
| month | Number of new members |
|---|---|
| January | 10 |
| February | 12 |
| March | 20 |
| April | 35 |
| May | 50 |
The company’s compound monthly growth rate during these five months is:
CMGR = [50 ^ (1/4) / 10] – 1= 5^ (1/4) – 1= 49%
The way to calculate future benefits using CMGR is:
Current month value x (1 + CMGR) ^ Monthly difference
Using a two-year time frame as an estimate, the company will receive the following number of new members in May:
Number of new members = 50 x (1 + 49%) ^ 24= 50 x 1.49^ 24= 716,870
CMGR can help investors estimate future growth through the growth rate over a certain time span, but there are many limitations when using it:
The calculation result of CMGR will increase exponentially. When the base value is small, a more reasonable growth rate can be obtained. However, if the base value is large, the value calculated using CMGR may exceed the revenue that can be obtained from normal operations. For example, in the above distance, 50 new users are used as the basic calculation value. It is calculated that 716,870 new users can be obtained in the same month two years later. However, if the base value is 500,000, the calculation result is an impossible increase in membership.
When using CMGR to calculate monthly changes that fluctuate too much, serious evaluation bias will occur. For example, in five months, 30 new members are gained in one month, 60 new members are gained in the next month, and 90 new members are lost in the next month. In the case of such a large fluctuation in membership growth, using CMGR will obtain a relative evaluation value, but it cannot truly reflect the high volatility risk of the business.
CMGR is applicable to the calculation of compound interest growth model, but not to the calculation of simple interest growth model. For some investments with interest as the source of income, the calculation principle of CMGR is applicable to compound interest growth, that is, as time goes by, the benefits will grow faster. For simple interest growth, CMGR will provide an incorrect calculation result.
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2. Quarter-on-quarter (QoQ)
Quarterly comparison is the ratio of change of various values in a relatively continuous three-month quarter, for example, the operating profit of one quarter compared with the previous quarter.
Publicly listed companies must publish financial reports every quarter, also known as 10-Q reports, so corporate managers can use the 10-Q form to conduct quarterly performance analysis to evaluate whether the current strategy has achieved the expected operating returns, and adjust the operating strategy in a timely manner based on performance in consecutive quarters to obtain better operating results. For example, the types of products sold in different seasons can be determined by the quarterly year-on-year increase rates of different products in summer and winter.
Investors can use the data in the financial report to perform quarterly calculations of various operating indicators.
Regarding stock price trends, some investors will also perform quarterly calculations and estimate whether the stock price will reach a peak or bottom based on changes in the rise and fall ratio, as one of the reference indicators for determining investment decisions.
Because most economic and financial data show quarterly differences, quarterly year-on-year growth is more commonly used than monthly year-on-year growth in analyzing changes in various economic and financial values. This is especially true for companies that have already begun to grow in size. Quarterly year-on-year growth can provide companies with more instructive financial analysis results.
3. Year-on-year (YoY)
The year-on-year growth rate considers the growth rate of financial data over a longer time span, which can be the year-on-year growth rate of one month, the year-on-year growth rate of one quarter, etc.
The advantage of year-on-year analysis over month-on-month analysis is that it can measure the significance of data changes over a longer time frame while excluding the impact of some unexpected situations on operational capacity analysis or the impact of seasonal factors on financial analysis.
For example, for a company, the sales in December increased a lot compared with November. This month-on-month result seems to indicate that the company’s profitability has increased, but it is obvious that this result is affected by holidays such as Christmas. Therefore, the year-on-year growth in December should be used to analyze the company’s profitability growth, that is, to analyze the sales growth rate in December this year and December last year, so as to analyze the company’s profitability more fairly under the same background.
Similarly, if the month-on-month performance decreases by 5% and the year-on-year performance increases by 10%, this is a good data for the company. The month-on-month decrease may be caused by industry characteristics, while the year-on-year increase reflects the increase in the company’s profitability.
For governments, central banks and other institutions, year-on-year growth has the same meaning, that is, to measure economic growth or decline under a similar economic background to eliminate the impact of seasonal factors on the analysis results. It is often used to analyze the consumer price index CPI, gross domestic product GDP, unemployment rate and interest rate.
So the difference between the three is:
| ITEM | Month-on-month MoM | Quarter-on-quarter QoQ | YoY |
|---|---|---|---|
| Calculation cycle | Every month | Every quarter | Monthly, quarterly or annually |
| Cycle span | Consecutive months | Consecutive quarters | Same period in consecutive years |
| Ratio Meaning | Changes in financial values each month according to the timeline | Changes in financial values for each quarter based on the timeline | Same cycle in consecutive years |
| Ratio characteristics | Analyze the changes in financial data in great detail;Will be affected by various events; | Analyze the changes in financial data on a quarterly basis;Can show obvious seasonal changes; | Measure changes in financial data over a longer time span;It can avoid the impact of unexpected events on data changes;It can reflect the significance of numerical changes more holistically; |
How to calculate MoM, QoQ, YOY respectively?
The month-on-month calculation method is:
Month-on-month growth percentage = (this month’s value – last month’s value) ➗ last month’s value x 100%
The calculation method for quarterly comparison is:
Month-over-month growth percentage = (this quarter’s value – last quarter’s value) ➗ last quarter’s value x 100%
The year-on-year calculation method is:
Year-over-year growth percentage = (value for a specific time period this year – value for the same time period last year) ➗ value for the same time period last year x 100%
Quarter-on-quarter, Apple’s net income in the first quarter of 2022 decreased. This may be related to various holidays in the fourth quarter, such as Black Friday and Christmas. The change rate of 27.78% shows that Apple achieved good sales in the big promotion activities in 2021.
According to the year-on-year analysis, the net income amount increased in the first quarter of 2022. This shows that Apple’s sales capacity has increased in a similar sales environment.
For investors, although the sequential growth rate declined in the first quarter, overall, Apple’s profitability is still increasing. At the same time, since Apple is a mature large company, it can still be considered in one’s portfolio.
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