Question

Explain how to compute the operating indicator analysis.

Answer 1

Operating indicator analysis as we know is a method to analyse the financial condition of any business by using operating indicators. It is used to measure the growth of any organization and analyze whether they are able to meet their set goals.

Let us see how to compute the operating indicator analysis:

A business need to set its goal which it has to achieve to grow further. The plans of the business are set according to the operating indicator analysis that may include production units, scrap units, units which are sold, sales outstanding.

These indicators listed above are analysed while the business keeps on going. Units are being produced, manufactured and sold. After a period, the expected data which the business has thought to achieve in this period is matched with the actual figures. If the ratios are matching, means the targets which were set are achieved and if not business needs to improve its functioning. The ultimate goal should be to achieve the goal of the organization and move towards growth.

It is total opposite of financial indicators analysis which uses income statements and financial reports to analyze the growth of the organization. Financial inductors are gross income, gross profit, profit after tax. These are also quantifiable like the operating indicators but they both are opposite.

While doing operating indicators analysis, if it is found that the units produced and sold are meeting the expected volume, the business is able to to meet its goals and is not incurring loss. This way we can analyze whether a business will achieve its goal or not. If found that productions are more but sales are not matching the volume that has been decided, it can be analyzed that quality of products should be increased so that sales volume can be increased.