Loading the player...

What are 'Metrics'

Metrics are parameters or measures of quantitative assessment used for measurement, comparison, or to track performance or production. Analysts use metrics to compare the performance of different companies, despite the many variations between firms.

BREAKING DOWN 'Metrics'

These measurements have traditionally been based in finance, but with increasing ability to measure and quantify how effectively we work, metrics can encompass almost all aspects of a business. Metrics can refer to a company's EBITDA, earnings per share (EPS), or any other financial ratios. They can also be industry specific, such as barrels of oil produced by  exploration companies. Taking the ratios of some metrics forms multiples, which further allow analysts to compare diverse firms.

Metrics refer to a wide variety of tools that managers and executives can use to evaluate the performance of their employees, their products, services, and customer satisfaction. In order to establish a metric, a company first needs to find a critical process, find outputs correspond to amount or type of work, and then set goals for those outputs. 

One way to measure project health is to break down the measurements you want to keep track of into seven criteria: resources, cost, time, scope, quality, safety, and actions. However these are chosen or measured, it’s common that any metric or set of metrics is linked with an overarching strategy, and are chosen in order to measure the performance of the overall strategy of that business or corporation against a ‘critical success factor’.

One of the dangers involved in using performance metrics to evaluating the performance of a department, company, or specific employee is choosing the wrong outputs to measure. Measurement inversion is the term used to describe this misplacement of importance, something that usually occurs when a business uses what is immediately measurable in order to try and evaluate performance. Businesses wanting to use performance metrics must focus on more valuable measures, what have come to be known as key performance indicators, or KPIs​. An entire decision analysis method, called applied information economics, is devoted to finding the right kinds of outputs to measure and analyze.

Some of the first examples of the use of performance metrics can be dated all the way back to the Venetians in the mid to late 1400s. A merchant city gave rise to accounting, and by extension the ability to take measurements and evaluate the performance of a business. 

Measurement of performance in the US became increasingly important during the industrial revolution as businesses grew and became harder to track. DuPont began using metrics to better their own business, and in the process came up with some of their own types of analysis. Later on, GE commissioned a set of metrics that are commonly used today, including market share, productivity, attitude, and responsibility. 

RELATED TERMS
  1. Multiple

    A multiple measures some aspect of a company's financial well-being, ...
  2. Earnings Power

    Earnings power is a business's ability to generate profit from ...
  3. Performance Shares

    Performance shares are stocks issued to executives and managers ...
  4. Quantitative Analysis (QA)

    Quantitative analysis (QA) is a technique that seeks to understand ...
  5. Key Performance Indicators - KPI

    Key performance indicators (KPI) are quantifiable measures that ...
  6. Absolute Performance Standard

    The absolute performance standard is a benchmark for quality ...
Related Articles
  1. Investing

    4 Tips to Evaluate Growth Companies (KO, AAPL)

    Discover the best metrics for stock investors to utilize when selecting and evaluating the best opportunities in growth investing.
  2. Investing

    Key Financial Ratios to Analyze Airline Companies

    Examine some of the most important financial ratios and performance metrics investors use to evaluate companies in the airline industry.
  3. Investing

    Peer Comparison Uncovers Undervalued Stocks

    Learn how to put one of the top equity analysis tools to work for you.
  4. Investing

    Key Financial Ratios for Restaurant Companies

    These 7 financial ratios provide insight into the profitability of a restaurant, prospective longevity of the business and quality of decisions being made.
  5. Investing

    Understanding Quantitative Analysis Of Hedge Funds

    Learn how hedge fund performance quantitatively requires metrics such as absolute and relative returns, risk measurement, and benchmark performance ratios.
  6. Investing

    Iron Ore Price Rally Extends Miners' Gains

    Almost a year ago, the big mining companies were split on where they saw the iron market heading. A nascent iron ore rally appeared to be underway, and on one side were BHP Billiton (NYSE: BHP) ...
RELATED FAQS
  1. Which metric should I pay more attention to, EV/EBITDA or P/E?

    Examine and compare the relative advantages and disadvantages of the two equity evaluation metrics, EV/EBITDA and the price-to-earnings ... Read Answer >>
  2. What metrics can be used to evaluate companies in the financial services sector?

    Explore some of the various equity evaluation metrics that can best be used to assess companies in the financial services ... Read Answer >>
  3. Why do shareholders need financial statements?

    Discover the importance of a company's financial statements for stock shareholders in evaluating their equity investment ... Read Answer >>
  4. Why are efficiency ratios important to investors?

    Learn about efficiency ratios, such as the asset turnover ratio, and why these metrics are important to investors when analyzing ... Read Answer >>
  5. What is the difference between cash flow and EBIDTA?

    Earnings before interest, taxes, depreciation, and amortization (EBITDA) is often used as a synonym for cash flow, however, ... Read Answer >>
  6. The Best Way to Calculate Profitability for Startups

    Understand how evaluating profitability at multiple levels is beneficial for startups, including learning the calculation ... Read Answer >>
Trading Center