The method of index economic analysis: definition, application, example

In the analysis of the economic state of an object, many methods and approaches are used. This allows us to make 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 frequent methods in an analytical study. The use of relative indicators allows us to identify trends that can not 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.

The concept of an index

To understand the methodology of the index method of economic, factor analysis, it is necessary to get acquainted with its main essence. This approach uses a certain type of indicators. These are indices. They are a relative indicator. The index method allows us to compare the incommensurable elements of a single common 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. Such a calculation reveals the dependencies and connections between the processes taking place.

The index method of economic analysis with the help of a whole system of relative indicators enables the analyst to evaluate the phenomena occurring at the object of research at all stages of the financial activity of the organization.

Types of Indexes

There are different classifications of indices. The simplest of them is the division of relative indicators into particular (simple) and general (analytical). The index method uses both approaches.

The first method of research is characterized by the use of the same indicator, without analyzing its relationship to other results of the organization's activities. 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 distinct signs are taken for the study. This is necessary to assess the weight of the studied indicator in the change in the overall result. For example, using a common index method, you can compare disparate elements, such as the company's working capital with its profit. This enables the financier to determine the dependence of the result on the factors influencing him. For example, how much working capital was needed to spend an enterprise to produce products in order to make a profit at the end of the reporting period.

Private and general indicators in the index method allow performing a comprehensive evaluation.

Purpose of application

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

First, this approach makes it possible to estimate the relative changes in the phenomenon or index being studied. Secondly, the method makes it possible to determine the degree of influence of the factor on the final result of a common characteristic. And thirdly, by studying the changes in the structure of the economic phenomenon , a conclusion is made about 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 activity of an object, it is necessary to perform calculations of only identical quantities. Each indicator participating in the study is taken in identical units of measurement, for example, in rubles, tons, pieces, etc.

Type of researched indicators

To properly construct a system, the index method of economic analysis determines two types of quantities. This 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, salaries, production costs, productivity or labor productivity.

All elements of the system must be significant and have economic significance.

The calculation by the index method can have an error, the magnitude of which is determined by the number of decimal places, as well as by the total number of factors.

Index construction rules

Depending on the type of indicators studied, the index estimation method uses two approaches to constructing the system.

For the construction of quality indicators (price, labor productivity, productivity, etc.), a comparison with their magnitude at the level of the reporting period is characteristic.

When building a system from volumetric indicators, the comparison occurs with the level of the base period. This is necessary to get the correct result of the calculations.

This recommendation is not required for all cases. Everything depends on the specific task for which the index method is applied. In any case, the features of the study must be taken into account when performing 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 are used in various forms. Indices can be aggregate, arithmetic and harmonic.

In the first case, the index is considered the basic form of the general form. The aggregate index can be converted to an average harmonic or an average arithmetic one. It is the basis that is built by weighing the indexed indicator using the constant value of the indicator associated with it.

The index method of factor analysis allows calculations over several periods. Baseline calculations assume that each successive result is compared with the same initial value. Chain methodology uses for comparison a constantly changing base.

Features of individual indexes

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

• The studied indicator is a quantity whose ratio of levels determines the index;
• The level of comparison is the period that is compared to the other;
• The base indicator is the period with which the comparison is performed.

Indices are expressed as a coefficient if the compared base is equal to one. In the case where the main calculation is taken as 100%, the result is obtained as a percentage. Usually, the indices are expressed in the form of a coefficient. Its accuracy is indicated 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 interest, the value is usually indicated to within a tenth of a percent (0.1%).

Features of common indexes

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 summed and the changes in the group of elements calculated. These are common indices. For example, you can add the number of sold similar products among all competitors, and calculate the total turnover index for the industry.

But in the case of using inhomogeneous elements in the system, they should be brought in a comparable form. For example, heterogeneous groups of goods have a value expressed in monetary units. They can be summed up.

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

Example calculation

The total production volume factor can be calculated by the index method. Examples of calculations, presented below, will help to understand the essence of the analysis.

Let's say the enterprise produces A. Its quantity increased from 10 to 13 in the reporting period. The price for 1 piece remained unchanged and equaled 5 rubles. The profit of the enterprise increased from 50 rubles. Up to 65 rubles.

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

I = 65/50 = 1.3 = 130%

In the example considered, 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. Hence, an increase in the production of finished products by 3 pcs. Was profitable and brought an increase in profits of 15 rubles.

Having familiarized with the basic principles and concepts of such an approach to assess the economic state of an object as an index method, it is possible to calculate the influence of factors on the overall result. This will allow to correctly identify the elements of the system, which, when changed, had an impact on the entire system. This will help the analyst to forecast the development of the facility in the future and develop a plan for improving each factor that affects the overall result.