What Are Metrics?

Metrics are measures of quantitative assessment commonly used for assessing, comparing, and tracking performance or production. Generally, a group of metrics will typically be used to build a dashboard that management or analysts review on a regular basis to maintain performance assessments, opinions, and business strategies. 

Understanding Metrics

Metrics have been used in accounting, operations, and performance analysis throughout history.

Executives use them to analyze corporate finance and operational strategies. Analysts use them to form opinions and investment recommendations. Portfolio managers use metrics to guide their investing portfolios. Furthermore, project managers also find them essential in leading and managing strategic projects of all kinds.

Overall, metrics refer to a wide variety of data points generated from a multitude of methods. Best practices across industries have created a common set of comprehensive metrics used in ongoing evaluations. However, individual cases and scenarios typically guide the choice of metrics used.

Choosing Metrics

Every business executive, analyst, portfolio manager, and the project manager has a range of data sources available to them for building and structuring their own metric analysis. This can potentially make it difficult to choose the best metrics needed for important assessments and evaluations. Generally, managers seek to build a dashboard of what has come to be known as key performance indicators (KPIs).

In order to establish a useful metric, a manager must first assess its goals. From there, it is important to find the best outputs that measure the activities related to these goals. A final step is also setting goals and targets for KPI metrics that are integrated with business decisions.

Academics and corporate researchers have defined many industry metrics and methods that can help shape the building of KPIs and other metric dashboards. An entire decision analysis method called applied information economics was developed by Douglas Hubbard for analyzing metrics in a variety of business applications. Other popular decision analysis methods include cost-benefit analysis, forecasting, and Monte Carlo simulation.

Several businesses have also popularized certain methods that have become industry standards in many sectors. DuPont began using metrics to better their own business and in the process came up with the popular DuPont analysis which closely isolates variables involved in the return on equity (ROE) metric. GE has also commissioned a set of metrics known as Six Sigma that are commonly used today, with metrics tracked in six key areas: critical to quality; defects; process capability; variation; stable operations; and, design for Six Sigma.

Examples of Metrics

While there are a wide range of metrics, below are some commonly used tools:

Economic Metrics

Operational Company Metrics

From a comprehensive perspective, executives, industry analysts, and individual investors often look at key operational performance measures of a company, all from different perspectives. Some top-level operational metrics include measures derived from the analysis of a company’s financial statements. Key financial statement metrics include sales, earnings before interest and tax (EBIT), net income, earnings per share, margins, efficiency ratios, liquidity ratios, leverage ratios, and rates of return. Each of these metrics provides a different insight into the operational efficiency of a company.

Executives use these operational metrics to make corporate decisions involving costs, labor, financing, and investing. Executives and analysts also build complex financial models to identify future growth and value prospects, integrating both economic and operational metric forecasts.

There are several metrics that are key to comparing the financial position of companies against their competitors or the market overall. Two of these key comparable metrics, which are based on market value, include price-to-earnings ratio and price-to-book ratio.

Portfolio Management

Portfolio managers use metrics to identify investing allocations in a portfolio. All types of metrics are also used for analyzing and investing in securities that fit a specific portfolio strategy. For example, environmental, social and governance (ESG) criteria are a set of standards for a company’s operations that socially conscious investors use to screen potential investments.

Project Management Metrics

In project management, metrics are essential in measuring project progression, output targets, and overall project success. Some of the areas where metric analysis is often needed include resources, cost, time, scope, quality, safety, and actions. Project managers have the responsibility to choose metrics that provide the best analysis and directional insight for a project. Metrics are followed in order to measure the overall progression, production, and performance.

What Is a Technical Indicator?

Technical indicators are heuristic or pattern-based signals produced by the price, volume, and/or open interest of a security or contract used by traders who follow technical analysis.

By analyzing historical data, technical analysts use indicators to predict future price movements. Examples of common technical indicators include the Relative Strength Index (RSI), Money Flow Index (MFI), stochastics, moving average convergence divergence (MACD), and Bollinger Bands®.

How Technical Indicators Work

Technical analysis is a trading discipline employed to evaluate investments and identify trading opportunities by analyzing statistical trends gathered from trading activity, such as price movement and volume. Unlike fundamental analysts, who attempt to evaluate a security’s intrinsic value based on financial or economic data, technical analysts focus on patterns of price movements, trading signals, and various other analytical charting tools to evaluate a security’s strength or weakness.

Technical analysis can be used on any security with historical trading data. This includes stocks, futures, commodities, fixed-income, currencies, and other securities. In this tutorial, we’ll usually analyze stocks in our examples, but keep in mind that these concepts can be applied to any type of security. In fact, technical analysis is far more prevalent in commodities and forex markets, where traders focus on short-term price movements.

Technical indicators, also known as “technicals,” are focused on historical trading data, such as price, volume, and open interest, rather than the fundamentals of a business, such as earnings, revenue, or profit margins. Technical indicators are commonly used by active traders, since they’re designed to analyze short-term price movements, but long-term investors may also use technical indicators to identify entry and exit points.

Types of Indicators

There are two basic types of technical indicators:

1. Overlays: Technical indicators that use the same scale as prices are plotted over the top of the prices on a stock chart. Examples include moving averages and Bollinger Bands®.
2. Oscillators: Technical indicators that oscillate between a local minimum and maximum are plotted above or below a price chart. Examples include the stochastic oscillator, MACD, or RSI.

Traders often use many different technical indicators when analyzing a security. With thousands of different options, traders must choose the indicators that work best for them and familiarize themselves with how they work. Traders may also combine technical indicators with more subjective forms of technical analysis, such as looking at chart patterns, to come up with trade ideas. Technical indicators can also be incorporated into automated trading systems, given their quantitative nature.

Example of Technical Indicators

The following chart shows some of the most common technical indicators, including moving averages, the RSI, and the MACD.

In this example, the 50- and 200-day moving averages are plotted over the top of the prices to show where the current price stands relative to its historical averages. The 50-day moving averages is higher than the 200-day moving average in this case, which suggests that the overall trend has been positive. The RSI above the chart shows the strength of the current trend—a neutral 49.07, in this case. The MACD below the chart shows how the two moving averages have converged or diverged—slightly bearish, in this case.