When you're looking for new investments or considering if your old ones are doing as well as they could, it's important to look at performance for like periods. That's where year over year comes into play. This simple snapshot can tell you a lot about how things are going.
What is year over year?
Year over year (YoY), also known as year on year, is a way to express the time frame during which you're comparing a metric to itself. For example, you might have a real estate investment trust (REIT) that you're looking at and you'd like to see if it's doing better or worse than this time last year when it comes to funds from operations (FFO).
But you can compare almost any metric year over year as long as you're comparing within the same data set. So, you can compare the FFO for the second quarter of 2023 and the second quarter of 2024 for ABC REIT, Inc., and the data will be useful, but you can't compare YoY funds from operations for ABC REIT Inc. and XYZ REIT, because that's simply not a meaningful way to use that data.
Why use year over year to compare metrics?
YoY tells you how much has changed between two points roughly 12 months apart. You can also compare data day over day, month over month, or quarter over quarter if those periods are meaningful for your purposes.
Sometimes, YoY can show you the direction of growth or shrinkage in a metric, or you can use it to demonstrate seasonality if you're comparing quarter over quarter (QoQ) or month over month (MoM) instead. It's a very simple comparison that says a lot and a way that you can string multiple years of data together to tell a story about your company's past and potential future trajectory.
Year over year versus year to date
Year over year is an important way to slice data but it's not the only way. Another common way people look at financial data is by using a year-to-date metric. These sound very much alike, but they couldn't be more different.
Year over year looks at a single data point in time -- say, the percentage of tenants who renewed their leases in the third quarter, compared to the prior year, or how much income the company made in the fourth quarter, compared to the year before.
Year to date, on the other hand, is cumulative data, and looks at the total metric to the point at which you're ending your analysis -- for example, how much income the company made from Jan. 1 through Oct. 14 or from Jan. 1 through April 21. Whatever your date, the metric is only cumulative to that point.
Related investing topics
Why does year over year matter to investors?
Year over year can be a really important way to analyze all kinds of businesses, which makes it an important viewpoint for stock investors. You can look at data and see if the company has, for example:
- Increased revenue.
- Decreased expenses.
- Improved cash flow.
- Improved tenant retention.
- Sold more units.
- Gotten more money per unit.
There's very little you can't compare year over year within the same company, but it's not the only tool you should have in your arsenal. If you're a long-term investor, it's important to remember to look at these things from several perspectives and use several different analytical tools before investing in a stock or choosing to sell your shares.
Perhaps the most important thing to keep in mind when making year-over-year comparisons is that the history of a company is a solid base to think about, but it's not predictive of future behavior. Anything can happen in a company to change its trajectory, including geopolitical pressures, influences from a change in management, or changing economic conditions.
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