Explore the benefits of Year-over-Year (YOY) and Quarter-over-Quarter (QOQ) evaluations in financial analysis. Understand how these comparisons can be used to gauge a company's financial performance and aid investment decisions.
Key Insights
- Year-over-Year (YOY) is a method used to compare the results of measured events over comparable periods on an annualized basis.
- YOY is often employed in financial analysis to assess a company's performance, helping to mitigate influences such as seasonality.
- The YOY calculation involves comparing this year's value to the previous year's, expressed in percentage terms.
- Year-over-Year comparisons are typically presented annually, quarterly, and monthly to provide a comprehensive performance overview.
- Quarter-over-Quarter (QOQ) measures changes in performance between one fiscal quarter and the preceding one, reflecting short-term changes in various metrics.
- For businesses with fluctuating incomes or peak earnings at certain times, seasonal adjustments may be necessary, or a YOY metric may be more appropriate to measure performance.
DCF Workflow
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Forecast Free Cash Flows
5-10 years of FCF based on operating assumptions.
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Calculate Terminal Value
Gordon growth or exit multiple beyond projection.
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Discount at WACC
PV each year's FCF, sum to enterprise value.
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Adjust to Equity Value
Subtract net debt, divide by shares for per-share value.
YOY
- Year-over-year (YOY) is a method of evaluating two or more measured events to compare the results at one period with those of a comparable period on an annualized basis
- YOY comparisons are a popular and effective way to evaluate the financial performance of a company
- Investors seeking to gauge a company's financial performance use YOY reporting
- YOY comparisons are popular when analyzing a company's performance because they help mitigate seasonality, a factor that can influence most businesses
YOY calculations are straightforward and usually are expressed in percentage terms. This would involve taking the current year's value and dividing it by the prior year's value and subtracting one: (this year)/(last year)—1.
Year-over-year (sometimes referred to as year-on-year) comparisons are a popular and effective way to evaluate the financial performance of a company and the performance of investments. Any measurable event that repeats annually can be compared on a YOY basis. Common YOY comparisons include annual, quarterly, and monthly performance.
QOQ
- QOQ compares a change in performance between one fiscal quarter and the previous fiscal quarter.
- QOQ reflects short-term changes in various metrics and can indicate company performance over two quarters.
- Businesses that have income fluctuations or peak earnings at certain times may need to make seasonal adjustments or use a YOY metric to measure performance.
