The indicators that can be relevant both from the point of view of assessing the situation at a particular enterprise, and in identifying macroeconomic trends, are various indices - for example, the physical volume of production or sales. How are they calculated? For what purpose can they be used?
What is the essence of the index of physical volume?
Index of physical volume - an indicator that generally characterizes the number of products or services produced by an enterprise. It is relative and shows how much the mass of output has changed when comparing indicators in 2 different periods.
The considered index is mainly based on the use of information on the dynamics of various physical indicators within the framework of production according to a fixed list of manufactured goods. Depending on the tasks of the researcher, the indicator for a particular enterprise or the general index of physical volume — turnover or, for example, industrial production — can be determined. In the second case, the structure of the indicator can include goods and services in a wide range. This index allows you to assess the situation not in a separate enterprise, but in the industry as a whole. It can also be of great importance in terms of assessing the macroeconomic situation in the national economy.
If necessary, the index of physical volume, characterizing the work of one factory, can be compared with industry indicators or those that show other similar industries. As a result, the same industry-wide production index can be formed, reflecting the state of affairs in the whole segment of the state economy. We study the specifics of its calculation in more detail.
Production Index by Industry: Nuances
The index of the physical volume of output of goods in the industry as a whole is calculated in several stages.
First of all, a list of specific industries is determined, within the framework of which indicators for the production of certain goods will be analyzed. In addition, if the purpose of the study requires this, sub-sectors are also determined.
After that, for each industry or sub-industry, a list of the analyzed goods is formed. It can be represented by a very large number of products - for representativeness.
After that, the index of the physical volume is calculated. Its formula may include such indicators:
- an index of the volume of production within a specific industry or sub-sector;
- the volume of release of a product in the reporting period;
- the selling price of the corresponding product.
The formula in question can be supplemented by other indicators depending on the specific tasks that the researchers face.
In practice, industry-specific indices can be combined to obtain data on a segment of the economy as a whole. For example, if the index of physical volume needs to be determined for the fuel industry, then its calculation will use indicators that characterize the situation in the oil, oil refining, gas, coal, and shale industries. Moreover, each of the relevant industries may have a different share in the total value added of the fuel industry. Thus, the general index of the physical volume of fuel production can be calculated taking into account many nuances. For example, characterizing the form of organization of the release of goods at a particular enterprise or in the industry as a whole.
Let us consider in more detail how the index of physical volume of production is calculated taking into account the characteristics of the organization of production.
Calculation of the production index: summation of indicators for enterprises
Among Russian researchers, an approach is widely used in which the indicator in question is determined in 4 stages:
- summation of indicators for enterprises;
- differentiation of products by liquidity, relevance to market relations, other criteria;
- separation of revenue from output;
- definition of the production cycle.
Thus, at the first stage, an individual index of the physical volume of output of goods by a particular enterprise is determined, after which it is summed up with the indicators that are determined when examining the results of activities of other firms in the industry. As a rule, organizations with comparable indicators in terms of revenue, actual output of goods, and the range of products are selected.
Product liquidity as a criterion for calculating the index
After the index of physical production is determined by summing up indicators of comparable scale enterprises, it can be adjusted taking into account the specifics of demand for certain types of goods. So, the least liquid types of products can be excluded from it, since the dynamics of their sales in many cases is not a significant indicator in terms of obtaining macroeconomic data.
Differentiation of products by industry
In addition, goods may be excluded from the index by their characteristics corresponding to the industry in question, but classified according to other criteria. So, for example, if an enterprise produces military vehicles along with civilian ones (of the same model), then when analyzing economic indicators it makes sense to exclude products of the first type from the index of the physical volume of automobile production. However, those indicators that will characterize the production of this type of equipment may affect what the composite index of the physical volume of production of the state’s military industry will be.
Market environment as a criterion for product differentiation
The differentiation of indicators may also make sense because the production of civilian cars is generally carried out with the expectation of their subsequent implementation in the framework of the free market, often in foreign countries. In turn, military products, as a rule, are produced by prior order, and therefore they will almost certainly be sold. In this sense, the enterprise will perform an administrative task rather than one that would characterize the activities of the company as a full-fledged subject of commercial legal relations.
Thus, at this stage of the calculation of the indicator in question, it is important to correctly distinguish products by industry, if this, of course, is required based on the characteristics of the structure of the national economy, as well as the specific tasks of researchers.
Calculation of the production index: separation of revenue from output
The next step in calculating the industrial index is to adjust it taking into account revenue indicators, which are related not so much to the release of goods, but to price increases, as well as an increase in the income of the enterprise, for example, as a result of the provision of related services to some business entities. For example, related to the repair and maintenance of equipment manufactured by the enterprise.
This distinction will help the researcher, who determines the dynamics of macroeconomic trends, to better understand the principles of pricing in the corresponding industry segment. The fact is that the index of physical volume of production is considered in the general case separately from indicators of the value of goods and revenue in general.
Therefore, it is important for the researcher to reliably establish the fact of changes in the corresponding index in real terms. If the selling price of the goods has increased, and the company's revenue has increased, while the company has put on the market a similar amount of goods, then the increase in the physical volume of production is not fixed.
Calculation of the production index: determining the production cycle
At the third stage of calculating the indicator in question, it is necessary to correlate the dynamics of finished goods production and production volumes of those goods that are used to manufacture the corresponding products. In this case, we are talking about establishing a connection between the fact of the production of specific components and materials and the assembly of finished products, as well as the consideration of these stages of the manufacture of goods in the context of a single production process.
The statistics for the enterprise and the industry should not include indicators that are not directly related to production: for example, equipment purchased from a third-party supplier and resold equipment should not be taken into account as the factory’s own products, and therefore, its value cannot affect the index in question.
Sales index
Having determined the essence of the production index, we consider the specifics of the use of this indicator in sales. Often, owners of enterprises turn to managers with a request: "Define the index of the physical volume of sales of goods." What are its features?
In fact, characterizing the work of one enterprise or the general index of physical volume of goods turnover will be similar in value in the study of economic segments to that indicator, which is determined in the industry.
Industry-wide trade index
In order to determine the industry-wide index (for example, in the retail segment), it is necessary to calculate the dynamics of its largest sectors - trade in food products, household appliances, clothing, etc. The principles for comparing indicators here may be the same as in the case of industrial indices. That is, it will be considered, for example, what is the weight of a particular industry in terms of turnover in the retail segment as a whole. It may differ significantly from the performance of another industry. It is possible that the index of physical volume of trade in grocery retail will be positive, and in electronic - negative.
In order to determine the overall retail indicator as a whole (which will be important from the point of view of assessing the situation in the national economy), the addition of the corresponding indices will need to be made taking into account the difference in their dynamics. In this case, the overall indicator can be determined using fairly complex formulas.
Sales and Revenue Index
In addition, it is worth noting that the index of physical volume of sales of goods does not always correlate with the revenue of the enterprise. Above, considering the specifics of determining the corresponding indicator in industry, we talked about the need to distinguish between the dynamics of an enterprise receiving revenue and the actual volume of output of goods. The same can be said of product sales. It is one thing if the firm's profit has risen as a result of higher prices, and another if the capital is earned by increasing sales.