How TPC Works

By Michael K. Lowry
Source: Aviation Week & Space Technology

The three scoring algorithms are:

Primary, scoring over 80% of the total units presented. Metrics used in this algorithm, if applied to the consolidated P&L and balance sheet results of non-IT companies, are 80% correlated to parent TPC scores based on a 12-year (1999-2010) look-back period.

Limited, scoring approximately 5% of total units presented, is used when segment disclosures include only revenue and operating profit data. Correlation of metrics used in this algorithm to parent results of non-IT companies and their corresponding TPC scores over the Primary test period is 74%.

IT, scoring 15 segments and qualifying companies that have a heavy concentration of A&D-related government contracting (representing 12% of total units presented). This algorithm was developed to accommodate the unique nature of the IT business model compared to other A&D operating units. Correlation of IT metrics to parent results and earned TPC scores over the Primary test period is 72%.

Score Transformation

Business segment scores across all categories (except IT) have been adjusted to present relative values ranging from 1.0 (worst performance) to 99.0 (best result) over a two-year period (2009-10). Because of this arithmetical transformation and construction of the scoring algorithms that were not specifically aligned with TPC-defined peer groups, business segment scores will not necessarily correspond or provide a meaningful comparison to parent company TPC results.

OPERATING BENCHMARKS

Quality of Earnings-Advanced DuPont Model

Return on Equity (ROE) measures the profitability of a company's business. The Advanced DuPont Model defines the percentage contribution of the ROE result from operating and/or debt (financial leverage) sources.


Comments On Articles