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Frequently Asked Questions about Rates-of-Change

Does the 3/12 rate-of-change lead the 12/12?

Yes; typically, the 3/12 leads the 12/12 by approximately three to six months.

How many years of data history do I need in order to identify trends using rates-of-change?

You can begin tracking your rates-of-change with a minimum of two years of data. However, this will not show you any trend on a chart. You typically want to see two business cycle peaks and troughs in your dataset before you begin analyzing the trend relative to other data streams. We recommend a minimum of seven years of data.

What type of data should I look at?

It all depends on what questions you are trying to answer. Are you concerned about where your sales are in the business cycle? Then you want to look at your sales, revenue, or shipments data. Orders data also offers a good window into your future. Are you concerned with capacity issues? Then you may want to look at your production figures. Ultimately, it comes down to what type of business you have and what questions you are trying to answer. The data can be expressed in either currency or in units, depending on your company’s needs.

What types of data have you seen clients use?

Total sales, regional sales, divisional sales, product sales, orders, units sold, units shipped, pounds shipped, raw material prices, revenue.

What data should I use if my business has a lot of cancellations?

We would recommend that you stay away from looking at your orders data and consider using your revenue figures.

What data should I use if raw material prices make my sales figures fluctuate substantially?

We would recommend that you consider looking at your units shipped or pounds shipped. Essentially, identify a dataset that would not be as intensely impacted by the raw material prices.

How granular should the data be?

This depends on who will be using the output of the information and what questions you want answered from this analysis. If you are concerned about your total business, then total sales would be adequate. If you are concerned that your location in one state is performing better than a location in another state, then you would want to look at total sales by location. The same would apply for divisions or product lines.

What does it mean when the 3/12 upward passes the 12/12?

This is an early ITR Checking Point™ indicating that your 12/12 rate-of-change may be headed for a cyclical low point. Continue tracking the 3/12 to see if it continues to climb. Typically, it will take three months of the 3/12 above the 12/12 and a tentative 12/12 low to confirm that you have hit the cyclical low and that your annual growth rate is undergoing a trend reversal.

How many months does my company need to be in the new business cycle phase before it is established in that phase?

Three months generally makes a trend.

 

If you have more questions about calculating Rates-of-Change, or ITR's methodology, get in touch with us!