The Earnings Capability Index (ECI)
Intangibles have so far played a rather insignificant role in the management of a firm. Although gaining in importance for financial success over time and in management awareness, it still seems to be difficult to find adequate reporting, especially on an aggregated level. Investments in intangibles usually have a negative cash flow in the short term, but significant advantages in the mid and long term to secure the market and competitive situation of a firm. In order to secure this, a better understanding of which management actions can be made to improve performance over time and how to visualize and measure these intangibles is necessary.
The following paper will start with an overview of selected current Performance Measurement Systems and then is devoted solely to the structures and usage of the Earnings Capability Index (ECI)™. The index is based on financial and non-financial key performance indicators (KPI) in three dimensions: present earnings situation (short term), competitiveness (mid term) and ability to change (long term). Two case studies will show how important it is to include all aspects of ECI before deciding on any management action. The wrong approach or only using parts of ECI can lead to wrong decisions.