Definition of Impact Factor from Thomson Scientific, full information can be found  here.

 This essay was originally published in the Current Contents print editions June 20, 1994. 

" Librarians and information scientists have been evaluating journals for at least 75 years. Gross and Gross conducted a classic study of citation patterns in the '20s.1 Others, including Estelle Brodman with her studies in the '40s of physiology journals and subsequent reviews of the process, followed this lead.2 However, the advent of the ISI® citation indexes made it possible to do computer-compiled statistical reports not only on the output of journals but also in terms of citation frequency. And in the '60s we invented the journal "impact factor." After using journal statistical data in-house to compile the Science Citation Index® (SCI®) for many years, ISI began to publish Journal Citation Reports® (JCR®)3 in 1975 as part of the SCI and the Social Sciences Citation Index® (SSCI®). 

Informed and careful use of these impact data is essential. Users may be tempted to jump to ill-formed conclusions based on impact factor statistics unless several caveats are considered. 

The JCR provides quantitative tools for ranking, evaluating, categorizing, and comparing journals. The impact factor is one of these; it is a measure of the frequency with which the "average article" in a journal has been cited in a particular year or period. The annual JCR impact factor is a ratio between citations and recent citable items published. Thus, the impact factor of a journal is calculated by dividing the number of current year citations to the source items published in that journal during the previous two years (see Figure 1). 

Figure 1: Calculation for journal impact factor. 
A= total cites in 1992 
B= 1992 cites to articles published in 1990-91 (this is a subset of A) 
C= number of articles published in 1990-91 
D= B/C = 1992 impact factor 
 

The impact factor is useful in clarifying the significance of absolute (or total) citation frequencies. It eliminates some of the bias of such counts which favor large journals over small ones, or frequently issued journals over less frequently issued ones, and of older journals over newer ones. Particularly in the latter case such journals have a larger citable body of literature than smaller or younger journals. All things being equal, the larger the number of previously published articles, the more often a journal will be cited.4, 5 

Applications 
There have been many innovative applications of journal impact factors. The most common involve market research for publishers and others. But, primarily, JCR provides librarians and researchers with a tool for the management of library journal collections. In market research, the impact factor provides quantitative evidence for editors and publishers for positioning their journals in relation to the competition--especially others in the same subject category, in a vertical rather than a horizontal or intradisciplinary comparison. JCR® data may also serve advertisers interested in evaluating the potential of a specific journal. 

Perhaps the most important and recent use of impact is in the process of academic evaluation. The impact factor can be used to provide a gross approximation of the prestige of journals in which individuals have been published. This is best done in conjunction with other considerations such as peer review, productivity, and subject specialty citation rates. As a tool for management of library journal collections, the impact factor supplies the library administrator with information about journals already in the collection and journals under consideration for acquisition. These data must also be combined with cost and circulation data to make rational decisions about purchases of journals. 

The impact factor can be useful in all of these applications, provided the data are used sensibly. It is important to note that subjective methods can be used in evaluating journals as, for example, by interviews or questionnaires. In general, there is good agreement on the relative value of journals in the appropriate categories. However, the JCR makes possible the realization that many journals do not fit easily into established categories. Often, the only differentiation possible between two or three small journals of average impact is price or subjective judgments such as peer review. 

Using the Impact Factor Wisely 
The Institute for Scientific Information® (ISI®) does not depend on the impact factor alone in assessing the usefulness of a journal, and neither should anyone else. The impact factor should not be used without careful attention to the many phenomena that influence citation rates, as for example the average number of references cited in the average article. The impact factor should be used with informed peer review. In the case of academic evaluation for tenure it is sometimes inappropriate to use the impact of the source journal to estimate the expected frequency of a recently published article. Again, the impact factor should be used with informed peer review. Citation frequencies for individual articles are quite varied. 

There are many artifacts that can influence a journal's impact and its ranking in journal lists, not the least of which is the inclusion of review articles or letters. This is illustrated in a study of the leading medical journals published in the Annals of Internal Medicine. 6 "

Excerpted from: 
Thomson Scientific Web site 2/10/2005, click here for their page with more information.