Picking the right metric is everything – the case of railroads
Metric #1 – ton miles: miles x weight – really important. Railroads carry more freight than any other mode of transporation – 41% versus 40% for trucks.
Metric #2 – tons (tonnage), not so important: 15% v 70% for trucks.
Metric #3 – value of freight: even less important 4% versus 70% for trucks.
Another example – valuing companies. Perhaps the most common metric is the price-t0 earnings ratio. But this says absolutely nothing about either the balance sheet or the quality or sustainability of earnings. A good metric adjusts for all these factors.
YOUR TURN: Can you think of other examples?