Indices / Indicators / Attributes

When analyzing the operation of a company, fortunately, we can not only rely on intuition, the various characteristics and indicators help to reveal possible operational problems, opportunities, and risks.

In the life of a company, strategic objectives and basic processes, such as the development of production, sales and sales, are very important. However, these are only worth something if they provide measurable performance, and the processes are not just based on intuition or vague formulations. 

There are countless index in the world that measure the operation and effectiveness of businesses, but in order to understand them, we must also know the meaning of basic data specific to a company. How and in what manner can be grouped for example company costs? What exactly do the balance sheet - and that profit and loss account main lines? To highlight only two of the most important issues.

Some of the indicators calculated on the basis of company data specifically examine the effectiveness of a company. Such is, for example, making the profitability of businesses independent of the tax environment and making them comparable EBIT (Earnings before interest, taxes) or that depreciation also taking into account EBITDA (Earnings before interest, taxes, depreciation and amortization). 

They show the profitability of a company proportional to assets (ROA – return on assets) or proportional to capital (ROE - return on equity) return indicators, which are the total company assets or the own capital and the net result are compared. If the question is a specific investmentnt, then a ROI (Return of Investment) indicator is the simplest solution, which describes the relationship between the invested money and the resulting income.

There are also indicators that examine how reliably a company is able to fulfill its liabilities. These are usually the with liquidity related various attributes. Such a liquidity rate, which is the ratio of current assets to short-term liabilities, or a liquidity ratio, which takes into account only liquid assets among current assets (money, liquid securities and customers' debts).

And of course we can create different ones for ourselves performance indicators, which we can even develop for the entire company, for certain processes or even to measure the progress of projects. In the case of their application, however, it is important to pay attention to the fact that a poorly developed index leads to misleading results, from which we can only draw bad conclusions.