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; |
