Method of index economic analysis: definition, application, example

2024 Author: Henry Conors | [email protected]. Last modified: 2024-02-12 02:41

In the analysis of the economic condition of an 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 economic system of the country. The index method is one of the most common methods in analytical research. The use of relative indicators makes it possible to identify trends that cannot be determined using absolute values. In order to correctly draw conclusions about the state of the 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 relative. The index method allows you to compare disparate elements of one common phenomenon.

This indicator makes it possible to assess the change in the level of the subject of research bycompared with its planned value, as well as its weight in the overall result. Such a calculation reveals dependencies and connections between ongoing processes.

The index method of economic analysis, using a whole system of relative indicators, allows the analyst to evaluate the phenomena occurring at the object of study at all stages of the financial activity of the organization.

Types of indices

There are different classifications of indices. 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 received at the end of the reporting period is compared with its own planned value or for the previous year.

For the second category of indices, two different features are 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 a company's working capital with its profits. This enables the financier to determine the dependence of the result on the factors influencing it. For example, how much working capital did the company need to spend to produce products in order to make a profit at the end of the reporting period?period.

Partial and general indicators in the index method allow for a comprehensive assessment.

Purpose of application

Using the index method, economists pursue a number of goals.

Firstly, this approach allows to evaluate the relative changes in the studied 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, with the help of a study of changes in the structure of an economic phenomenon, a conclusion is made about the strength of the impact of each element of the system on its global change.

An economist should remember that when analyzing the results of an object's activity, it is necessary to calculate only identical values. Each indicator participating in the study is taken in identical units of measurement, for example, in rubles, tons, pieces, etc.

Type of indicators studied

In order to construct the system correctly, the index method of economic analysis defines two types of quantities. These can be quantitative and qualitative indicators.

The first category includes physical volume indices. These are quantitative indicators. For example, consumption of material goods, turnover, production, number of employees, equipment, etc. Qualitative indices include indicators of prices, wages, production costs, productivity or labor productivity.

All elements of the system whenthis should be significant 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.

Rules for building indexes

Depending on the type of indicators studied, the index evaluation method uses two approaches to building a system.

To construct qualitative indicators (price, labor productivity, productivity, etc.), it is typical to compare them with their value at the level of the reporting period.

When building a system of volume indicators, the comparison takes place 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 used. In any case, the features of the study must be taken into account when making an analysis.

Factor analysis

Index factor analysis method uses relative measures to evaluate plan performance, spatial comparisons and dynamics.

Systems in various forms are used for settlements. Indexes can be aggregate, arithmetic and harmonic.

In the first case, the index is considered the main form of the general form. Aggregate indicator can be converted to harmonic mean or arithmetic mean. It is the basis, which is built by weighting the indexed indicator using a constant valueassociated indicator.

The index method of factor analysis allows you to make calculations for several periods. Basic calculations involve comparing each subsequent result with the same initial value for all. The chain method uses a constantly changing base for comparison.

Features of individual indices

The index method, the definition of which involves the use of relative values in calculations, highlights 3 elements:

• studied indicator - a value whose ratio of levels determines the index;
• comparison level is the period that is compared with another;
• The baseline is the period against which the comparison is made.

Indices are expressed as a coefficient if the compared base is equal to one. In the case when the main calculation is taken as 100%, the result is obtained as a percentage. In general, indices are expressed in the form of a coefficient. Its precision is specified to the third decimal place (0.001). But there are such methods for which it is important to take into account more accurate indicators, for example, up to 7 characters. In the form of percentages, the value is usually indicated to the nearest tenth of a percent (0.1%).

Features of general indices

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 coefficientssummarize and calculate changes to a group of elements. These are general indexes. For example, you can add up the number of products sold of the same type among all competitors, and calculate the overall 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. These are the ones that can be summed up.

In this case, the change in value will be caused by a general change in two factors affecting it - quantity and price. For the study, it is necessary to evaluate each of them separately. When determining the impact of quantity on value, the price indicator is left unchanged at the beginning of the base period, and only the first factor under study is weighted.

Calculation example

The total production volume factor can be calculated using the index method. The calculation examples below will help you understand the essence of the analysis.

Let's say the company produces products A. Its quantity in the reporting period increased from 10 to 13 pieces. The price for 1 piece remained unchanged and was equal to 5 rubles. The profit of the enterprise increased from 50 rubles. up to RUB 65

In this case, the total output growth index is calculated as follows:

i=65/50=1, 3=130%

In the considered example, the increase in the company's profit was affected by the increase in the number of products produced, since the price remained at the same level. This means that an increase in the production of finished products by 3 pcs. was profitable and broughtincrease in profit by 15 rubles.

Familiarizing yourself with the basic principles and concepts of such an approach to assessing the economic condition of an object as an index method, you can calculate the influence of factors on the overall result. This will allow you to correctly identify the elements of the system, which, when changed, had an impact on the entire system. This will help the analyst to predict the development of the object in the future and develop a plan for improving each factor that affects the overall result.