Index Divisor

DEFINITION of 'Index Divisor'

A number used in the denominator of the ratio between the total value of an index and the index divisor. The number, which typically has little mathematical rationale behind it, remains consistent and therefore enables comparability within the index over time.

How the value of the index is computed depends on the type of index under consideration.

BREAKING DOWN 'Index Divisor'

An index divisor is a crucial number in the calculation of the value of an index. It is the basis for comparability across time, and the starting point for adjustments that need to be made due to changes in the equity composition of the underlying companies in the index.

Some of the adjustments that may need to be made to the divisor include changes in the number of shares floated by a company, any rights offerings made to employees or management, and any share repurchases.

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