How to calculate year over year growth

Written by stan aberdeen
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How to calculate year over year growth
Charts and graphs help to convey magnitude of year-over-year growth. (business charts with sell? image by Andrew Brown from Fotolia.com)

Year-over-year (YOY) growth refers to an expansion or contraction of a data type. For example, a company, debt, family budget or the stock market grows or contracts over the course of a year. YOY calculations over consecutive years may indicate a broader trend. For instance, if company profits rose by 20 per cent over the first year, then 15 per cent, then 10 per cent, then 2 per cent, then 0 per cent, it is rational to think that next year company profits will shrink. Year-over-year growth provides insight into likely -- but never certain -- behaviour of a variable in the near future.

Skill level:
Moderate

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Things you need

  • Calculator
  • Consecutive, annually collected data

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Instructions

  1. 1

    Establish a "base year." Year-over-year growth requires data from two consecutive years. Assume that during the first year, 2008, company ABC brought in £32 million in profits.

  2. 2

    Gather the same type of data for the second year. In the example, profit data for ABC Co. in 2009 is necessary. If you knew that in 2009 company ABC brought in £39 million in profit, you could calculate year-over-year growth. If you knew that Company ABC brought in £39 million in revenue in 2009, however, year-over-year growth calculations would be invalid. Revenue is not the same as profit. Revenue ignores business costs, whereas profit takes business and operational costs into account.

  3. 3

    Subtract profit of the first year (2008) from profit in the second year (2009). In the example, the calculation would be £39 million - £32 million = £6 million. Company ABC's profit grew by £6 million from 2008 to 2009.

  4. 4

    Express the growth amount as a percentage with respect to "base year" data. In this case, Company ABC's growth is £6 million. Growth value converted to percentage is as follows: £6 million / £32 million = 0.2. Multiply the 0.2 "decimal growth" by 100 per cent to get percentage growth: 0.2 * 100% = 20%. Therefore, Company XYZ had 20 per cent year-over-year growth from 2008 to 2009.

  5. 5

    Extend year over year growth calculations with respect to the next year. For instance, if in 2010 Company XYZ had £50 million in profit, year-over-year growth would be in respect to 2009 as the new "base year." Therefore, growth would is calculated with respect to 2009 profits of £39 million. Year-over-year growth for 2009 to 2010 is calculated as £50 million - £39 million = £11 million. Then, £11 million / £39 million = 0.3, and 0.3 * 100% = 30%.

Tips and warnings

  • If profit shrinks, do not use "double negatives" in reporting. For instance, if in 2011 Company XYZ's profit is only £26 million, then year-over-year growth in 2010-2011 was £26 million - £50 million = -$37 million. Converting to percentages, -37 million/78 million = -0.474, or -47.4%. This data could be reported as "growth of -47.4 per cent" or as "contraction of 47.4 per cent." Note that "contraction of -47.4 per cent" implies that company profits contracted by a negative -- meaning it increased. This is inaccurate.
  • University of Oregon's "Calculating Growth Rates" and "How to Calculate Annual Growth Rates" by Rutgers University have examples and explanations of growth rate calculations.

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