Question

Explain why economics characteristics and firm's strategies are important in financial statement analysis.

Answer 1

Economics characteristics and firm strategy are important in financial management analysis because of the following reasons-

A. Economic characteristics will be determining the macroeconomic situations in relation to performance of the business like inflation along with interest rate.

B. Formulation of monetary policy by the central banks are also helpful in determination of performance of the company in the long run as it will impact the cost of capital

C. firm strategies are important for determination of the level of responsiveness of the firm in respect to the changing conditions of the economy and it will help the form in order to synchronise its strategy with regards to that of economy.

D. Economic characteristic of the firm is also including the management of the business outside the domestic territory and it will help the business in order to cut down the cost.

E. The strategy of the business should be dynamic enough in order to replicate the changes in the Macro environment so that the business can maximize its overall profits.

Hence, it can be said that the economic characteristics along with firm strategies are important in order to deal with the macroeconomical changes and other changes in the business environment which will help the business in order to gain a competitive edge and maximizes rate of return in order to maximize the value of organisation and increase the sustainability of the organisation in the long run.