In the analysis of the economic condition of the object, many methods and approaches are used. This allows a comprehensive assessment of the key factors affecting the state of production or even the entire economy of the country. The index method is one of the most frequent techniques in an analytical study. The use of relative indicators allows us to identify trends that cannot be determined using absolute values. To correctly draw conclusions about the state of financial and economic activity of an object of any level, it is necessary to familiarize yourself with the basic principles of the index method.
Index concept
To understand the methodology of the index method of economic, factor analysis, you need to familiarize yourself with its main essence. This approach uses a certain type of indicators. These are indexes. They are a relative indicator. The index method allows you to compare the disparate elements of one general phenomenon.
This indicator makes it possible to assess the change in the level of the subject of research in comparison with its planned value, as well as its weight in the overall result. A similar calculation reveals the dependencies and relationships between ongoing processes.
The index method of economic analysis using a whole system of relative indicators enables the analyst to evaluate the phenomena occurring at the research object at all stages of the organization’s financial activity.
Types of Indexes
There are different classifications of indexes. The simplest of them is the division of relative indicators into private (simple) and general (analytical). The index method uses both approaches.
The first research method is characterized by the use of the same indicator, without analyzing its relationship with other results of the organization. Its changes are calculated only in time. For example, the company’s profit at the end of the reporting period is compared with its planned value or for the previous year.
For the second category of indices, two different indicators are already taken for research. This is necessary to assess the weight of the studied indicator in changing the overall result. For example, using the general index method, you can compare disparate elements, such as the size of the company's working capital with its profit. This enables the financier to determine the dependence of the result on the factors that influence it. For example, how much working capital was required for an enterprise to produce products in order to make a profit at the end of the reporting period.
The private and general indicators in the index method allow for a comprehensive assessment.
Purpose of application
Using the index method, economists have a number of goals.
Firstly, this approach allows you to evaluate the relative changes in the investigated phenomenon or indicator. Secondly, the method makes it possible to determine the degree of influence of a factor on the final result of a common feature. And thirdly, using the study of changes in the structure of the economic phenomenon, a conclusion is drawn on the strength of the impact of each element of the system on its global change.
The economist should remember that, when analyzing the results of the facility, it is necessary to carry out calculations only of identical values. Each indicator participating in the study is taken in identical units, for example, in rubles, tons, units, etc.
Type of indicators studied
To build a system correctly, the index method of economic analysis defines two types of quantities. These can be quantitative and qualitative indicators.
The first category includes indices of physical volume. These are indicators of a quantitative nature. For example, the consumption of material goods, commodity circulation, production, the number of workers, equipment, etc. Quality indices include indicators of prices, salaries, production costs, productivity or labor productivity.
All elements of the system must be substantial and have economic value.
Calculation by the index method may have an error, the value of which is determined by the number of decimal places, as well as the total number of factors.
Index Building Rules
Depending on the type of indicators being studied, the index estimation method uses two approaches to building the system.
To build quality indicators (price, labor productivity, productivity, etc.), a comparison with their value at the level of the reporting period is characteristic.
When building a system of volume indicators, the comparison occurs with the level of the base period. This is necessary to obtain the correct calculation result.
This recommendation is not required in all cases. It all depends on the specific task for which the index method is applied. In any case, the features of the study must be considered when making the analysis.
Factor analysis
The index method of factor analysis uses relative indicators to assess the implementation of the plan, spatial comparisons and dynamics.
For calculations, systems in various forms are used. Indexes can be aggregate, arithmetic and harmonic.
In the first case, the index is considered the main form of the general form. The aggregate indicator can be converted to the harmonic mean or arithmetic mean. It is the basis, which is built by weighing the indexed indicator using the constant value of the indicator associated with it.
The index method of factor analysis allows you to perform calculations for several periods. Basic calculations involve comparing each subsequent result with a single original value for all. The chain methodology uses a constantly changing base for comparison.
Features of individual indexes
The index method, the definition of which involves the use of relative values ​​in the calculations, identifies 3 elements:
- the studied indicator is a value, the ratio of the levels of which determines the index;
- level of comparison - this is the period that is compared with another;
- the base indicator is the period with which the comparison is made.
Indexes are expressed as a coefficient if the compared base is equated to one. In the case when the main calculation is taken as 100%, the result is obtained as a percentage. Indexes are usually expressed in the form of a coefficient. Its accuracy is indicated up to the third decimal place (0.001). But there are methods for which it is important to take into account more accurate indicators, for example, up to 7 characters. In the form of percentages usually indicate the value to the nearest tenth of a percent (0.1%).
General Index Features
Most of the processes and phenomena studied by analysts consist of a large number of elements.
The index method can take homogeneous elements for calculations. In this case, the coefficients can be summarized and the changes in the group of elements can be calculated. These are general indexes. For example, you can add up the number of products of the same type sold among all competitors, and calculate the total turnover index for the industry.
But in the case of using heterogeneous elements in the system, they should be brought into a comparable form. For example, heterogeneous groups of goods have a value expressed in monetary units. It is them that can be summarized.
In this case, the change in value will be caused by a general change in the two factors influencing it - quantity and price. For research, it is necessary to evaluate each of them individually. When determining the effect of quantity on value, the price indicator remains unchanged at the beginning of the base period, and only the first factor under study is weighed.
Calculation Example
The total coefficient of the volume of production can be calculated by the index method. The examples of calculations presented below will help to understand the essence of the analysis.
Suppose an enterprise manufactures products A. Its quantity in the reporting period increased from 10 to 13 pieces. The price for 1 piece remained unchanged and amounted to 5 rubles. The company's profit increased from 50 rubles. up to 65 rub.
In this case, the general index of growth in output is calculated as follows:
i = 65/50 = 1.3 = 130%
In the considered example, an increase in the profit of the enterprise was affected by an increase in the number of manufactured products, since the price remained unchanged. This means an increase in the production of finished products by 3 pcs. It was profitable and brought a profit increase of 15 rubles.
Having become acquainted with the basic principles and concepts of such an approach for assessing the economic condition of an object, such as the index method, it is possible to calculate the influence of factors on the overall result. This will allow you to correctly identify the elements of the system that, when they changed, had an impact on the entire system. This will help the analyst predict the future development of the facility and develop a plan for improving each factor affecting the overall result.