“Year over year,” or YoY, refers to the process of comparing data from one year to data from the previous year. It’s a term you’ll hear frequently when considering investment returns because it allows you to look at changes in annual performance from one year to the next.

YoY is a standard way to look at increases or decreases in specific funds or investments, the stock market, company revenues and inflation.

“Year-over-year is simply looking at present data and comparing it to data published exactly one year ago,” says Todd Schoenberger, a former hedge fund manager. “It's important because it can easily show a trend, either negative or positive, for whatever metric you are looking into. For example, if you were interested in corporate earnings, you could see that, say, Walmart posted 10 percent revenue growth from the same period as last year, and this would be a very positive sign.”

Why do I need to compare one year to the next?

If you’re investing in the stock market, it’s a good idea to keep track of the performance of your investments. And YoY data allows you to track performance in a way that shows clear comparisons. “Comparing year over year data is a way to make an ‘apples to apples’ comparison,” says Rob Cavallaro, chief investment officer at digital wealth-management platform RobustWealth.

Many businesses are seasonal. For instance, in retail businesses, fourth-quarter sales (October to December in the calendar year) are almost always stronger than first-quarter sales (from January to March). So most retail businesses will show a revenue increase from the first quarter of a year to the fourth quarter of the same year. But if you compare this year’s fourth-quarter sales to last year’s fourth-quarter sales, you can see whether the business is actually increasing in revenue or just benefiting from a normal seasonal sales increase.

Another way to look at it: Your investments in mutual funds (actively managed investment accounts), exchange-traded funds (or ETFs) and other equity-based investments are actually investments in a selection of businesses, most of which may have predictable seasonal cycles. So looking at the earnings of a particular investment from one quarter to the next or across one calendar year often results in skewed results. But studying the investment’s YoY earnings can show true growth or shrinkage without the impact of seasonal ups and downs.

So, YoY comparisons are just for seasonal investments?

Seasonal changes in earnings aren’t the only reason investors should pay attention to YoY comparisons.

Don’t just look at YoY figures from last year to the current year. You should also make YoY comparisons from the current year to two years ago, three years ago, five years ago. YoY comparisons over a number of years can show you how an investment performs over a lengthy period of time and in different types of markets.

“It’s crucial to evaluate an investment or fund over a full market cycle,” Cavallaro says. “Look at how it performed when the economy was doing well and how it performed when the economy was in a recession.”

The most successful investors have a long-term plan for investing—and it’s important to think long-term about the performance of your investments. Because the nature of the market is to fluctuate, it’s a good idea to see how a certain investment has performed in the past during bear and bull market conditions (in simple terms, the down and up periods of the stock market). Then you’ll have a better idea of what you can expect from that investment in the future.

What’s the best way to analyze YoY data?

Usually, a year-over-year comparison is shown as a percentage change from one year to the next, such as 25 percent growth from one year to the next or 5 percent growth (or decline) from the first quarter of last year to the first quarter of this year.

You can determine the YoY growth rate by subtracting last year’s revenue number from this year’s revenue number. A positive result shows a YoY gain, and a negative number shows a YoY loss. Divide that result by last year’s revenue number to get the YoY growth rate. Convert that figure to a percentage by moving the decimal point two spaces to the right. For instance, .050 would be a 5 percent growth rate.

What else do I need to know about YoY comparisons?

As important as YoY comparisons can be, they really aren’t enough to gauge a long-term investment plan.

“Particularly for younger investors, it’s important to look at longer time frames,” Cavallaro says. “YoY is important, but if you have 35 years until retirement, it’s very important for you to look at long-term goals and long-term growth over a lengthy period of time.”