Year-on-year comparison
Year one-year comparison means comparing numbers in the financial statement with the last year’s numbers. So, it’s about analyzing the numbers in series and concluding on the performance.
Increase/decrease can have different interpretations for the numbers when compared with last year. For instance, an increase in revenue is considered good, and an increase in expenses may not be desirable from a financial performance perspective.
It’s important to note that comparison needs to be logical and relative. Logical means comparing numbers with some logic in mind. For instance, marketing expense is related to sales, finance expense is related to loans, depreciation expense is related to property, plant & equipment purchase and so on.
Considering the logics and related account movements, performance metrices are designed called financial ratios. These ratios compare numbers with defined logic and help to conclude the financial performance of the business.
Frequently used ratios include gross profit margin, net profit margin, current ratio and so on.
Wrap up
Year-on-year comparison means comparing numbers with the last year’s accounting numbers. It helps to conclude the business’s financial performance.
An increase/decrease in the numbers may or may not be desirable depending on the nature of the line item. For instance, an increase in revenue is desirable, but an increase in expense is not desirable.
Similarly, multiple metrices are designed to measure and control financial performance called financial ratios.
Daniyal is passionate about simplifying complex accounting concepts, Founded Accounting with Clarity to share practical insights, technical guidance, and real-world finance advice that empower professionals and business owners to make informed decisions with confidence.