Operating Index

Definition

The Operating Index shows a company's performance on a key performance indicator, a metric, compared with the median or average performance of that metric in the Peer Universe over a period of time. The chart below illustrates an Operating Index example.

Description

The Operating Index graph shows the development of the median or average of the metric in the Peer Universe as a solid blue line. Typically, the first and the third quartile borders, the 25th and the 75th percentile, are marked as lines or the borders of a shaded blue area as illustrated below. These market values are shown against the metrics of the company under evaluation. The company values are shown in the Operating Index as orange dots, connected with an orange line.

The Operating Index is calculated with actual values or with the deltas of the values from one period to the previous one.

Application

The Operating Index avoids false conclusions from misleading signals in corporate reporting that arise when only the internal metric is analysed. As shown in the graph above, such errors happen quickly. Viewed from the internal perspective, EBIT growth is the highest in 01 and 05 (2.3% and 2.0%). Viewed against the market, however, growth is actually worst in 05. Internally viewed, growth is the lowest in 03 (1.0%). Against the market, growth performance is actually best in that year because it is the highest against the Operating Index or almost at the 3rd quartile or 75th percentile, respectively. The tool makes also visible that the performance in 02 was just as good as in 01 although the growth contracted from 2.3% to 1.4%. The reason is the contraction of the market median Operating Index by a similar difference in that year.

The Operating Index is also used to assess a financial plan for strategy or indexed investment valuation by comparing the plan data against the historic market values of the respective metrics.

Examples

There are examples and applications of indexed bonus systems on the Social Science Research Network: Download PDF.

The financial research company Obermatt AG (about) provides indexing performance analysis such as the Operating Index to clients. Request a quote for your company by contacting Obermatt AG (contact).

If you are writing a dissertation or master thesis on this topic, Obermatt AG (career) supports you.