Year-over-Year (YoY) and Quarter-over-Quarter (QoQ) comparisons play a vital role in helping businesses, investors, and analysts gain valuable insights into the underlying dynamics of a company’s growth and performance. In this blog, we will explore the differences and significance of YoY and QoQ comparisons, shedding light on when and how each approach should be used.
Defining YoY & QoQ Comparisons
Year-over-Year (YoY) comparison is a method of evaluating data for a specific metric over two consecutive years. It involves comparing the current year’s data to the data from the same period in the previous year. For instance, to analyze a company’s revenue YoY, you would compare the revenue earned in the first quarter of the current year with the revenue earned in the first quarter of the previous year.
On the other hand, Quarter-over-Quarter (QoQ) comparison focuses on analyzing data over two consecutive quarters within the same year. It involves comparing the data from the current quarter with the data from the immediately preceding quarter. For example, to assess a company’s sales QoQ, you would compare the sales in the second quarter of the year with the sales in the first quarter.
The Importance of YoY Comparisons
Year-over-Year comparisons are particularly useful for identifying long-term trends and seasonal patterns. By comparing data from the same period in different years, businesses can filter out the effects of seasonality and better understand their growth trajectory. YoY comparisons are also beneficial when assessing a company’s overall performance, as they offer a broader perspective of how the business is evolving over time.
Poonawalla Fincorp, a Pune-based NBFC, led by Abhay Bhutada recently reported AUM Rs.17,776 crore, up 41% YoY. This recent data attest to the success and growth of the company because when compared to the last quarter, it shows a clear jump in the numbers. Ledningkart will be another good example to understand YoY. Harshvardhan Lunia, co-founder, and CEO of Lendingkart, aims to achieve a 33% YoY increase in topline revenue, reaching Rs 1,100 crore by March 2024. The bottomline is expected to grow by 67% YoY, surpassing Rs 200 crore in FY24. Here, it clearly shows their progress and if they manage to reach the number, it’ll attest as a success to their long-term growth strategy.
The Significance of QoQ Comparisons
Quarter-over-Quarter comparisons, on the other hand, offer a more granular view of a company’s performance. They help identify short-term trends and fluctuations within a year. QoQ comparisons are crucial for detecting sudden changes in business operations or performance, which may not be apparent in YoY comparisons.
Poonawalla Fincorp reported the highest-ever profit after tax of Rs 200 crore for FY24. With Abhay Bhutada, MD, Fincorp’s quarterly disbursements reached Rs 7,063 crore, with 11% QoQ growth. The year showcased outstanding performance in growth, credit quality, and profitability. CRISIL and CARE upgraded the credit rating to AAA, confirming strong fundamentals and effective execution.
Conclusion
YoY comparisons help identify long-term patterns and seasonal variations, while QoQ comparisons offer a more detailed view of short-term changes. To harness the full potential of these methods, analysts and decision-makers should integrate both YoY and QoQ comparisons into their data analysis toolkits. By doing so, businesses can gain a more nuanced understanding of their performance and make data-driven decisions to drive growth and success.