Indexed Performance Measurement
Indexed performance measurement uses comparable peer companies for relative performance evaluation. Relevant peer companies for indexing operating performance are called peer companies. A group of peer companies is called a peer universe.
Unlike benchmarking, the perspective of indexing is that of the investor, since the objective of indexing is to measure performance. This performance is determined by investor behavior: If an investor regards a company as a peer, then this company is part of the peer universe for indexing.
Indexing operating performance uses the following tools:
- Operating Trend: The Operating Trend displays the development of the median or other location parameters of a financial metric of a Peer Universe across several time periods.
- Operating Index: The Operating Index shows a company's performance on a financial metric or key performance indicator (KPI) compared with the median or average performance of that metric in the Peer Universe over a period of time.
- Operating Alpha: Operating Alpha is the difference between the actual value of a company's financial metric and the Operating Index of that metric of the respective Peer Universe.
- Operating Rank: The Operating Rank is the percentile rank of a financial metric within the relevant Peer Universe of this metric.
- Operating Distribution:The Operating Distribution shows a company's position within the statistical distribution of its Peer Universe for a financial metric for a certain time period.
- Operating Contribution: The Operating Contribution is the sum or the average of the Operating Ranks of a) several financial metrics of a company or a portfolio or b) one financial metric of several companies observed across several time periods.
- Operating Radar: The Operating Radar is a graphic display of the Operating Ranks of several financial metrics of a company or investment for a certain time period.
- Operating Rankings: An Operating Ranking is the tabulation of Operating Ranks of several companies for one time period.
Commercial databases are used to perform the analyses. An overview can be found here.