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What is Economic Analysis?



Company’s financial position can be check by various methods like Cash Flow Statement, Ratio Analysis, Balance Sheet and Equity price etc.
There are two analysis are used which help to evaluate the price of an equity that is fundamental analysis and technical analysis.
In fundamental analysis the stock prices are mispriced by market in short run and later it is corrected by market. When a mis-priced securities are traded in a market. The fundamental approach helps to determine the correct price of security. It includes three analyses:
·         Economic Analysis
·         Industry Analysis
·         Firm or Company Analysis

With the help of economic analysis the economic condition of market being analysed like interest rate, inflation, recession period, political rules and regulations etc. In different economic conditions the stock prices of a company changes.
With the help of Industry analysis company can find out the industry condition under which company can work like automobile industry, textile industry, IT industry and E commerce industry etc. working under different industry has different impact on company which affects the price of that company’s share.
Analysis of firms is necessary because each firm has its own rules and regulations. The working of a firm is affected by its internal and external factors like manager’s decision, strike in a firm, and change in the policy of a firm.

Economic analysis is further divided into two parts:
·         Internal  environment
·         External environment

Economic analysis helps to determine the economic condition under which the businesses are working. It affects the working environment of a Company’s.  An economic condition has positive and negative impact on Companies working environment.
In Internal environment the factors are partially or wholly controllable in nature.
In external environment the factors are un -controllable in nature.
The external environment is further divided into two parts:
·         Micro environment
·         Macro environment
In micro environment the factors affect directly the working of a Company. The factors are Competitors, Organisation, Suppliers, Market intermediaries and Customers.
In macro environment the factors affect indirectly the working of all Companies in general. The factors of macro environment are Population, Economic, Socio-cultural, Technological, Legal and Political and Environmental.

How does a micro and macro factor affect the company's working directly and indirectly?
 
If there is any change in the micro factors for example customer satisfies with the product of a company he / she/ institute will recommend others to use that product. It helps to increase sale of that product, increase the market volume and also increases the customer.
In other hand if customer is not satisfy with the product then it will show negative impact of company in the eye of that customer and  he/she will not recommend that product to others. The number of customers of a company decreases.

In macro factors the changes affect the companies as a whole. For example any changes by government in the legal rules under which companies work. It will indirectly affect the companies or company working. That rules and regulations are not for specific company, it is for every companies who works under that legal act or industry.
  




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