Economic Analysis

dawid.dawidowicz@zut.edu.pl
 Economic analysis

A systematic approach to determining

the optimum use of scarce resources, involving
comparison of two or more alternatives in achieving a
specific objective under the given
assumptions and constraints.
Economic analysis takes into account the opportunity
costs of resources employed and attempts to
measure in monetary terms the private and social
costs and benefits of a project to
the community or economy.

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 Economic analysis is a set of methods to
putting economic diagnoses in businesses

In the current business purpose of the

economic analysis is to provide information
about interferences in relation to the state as a
basis of comparison.
 The analysis is used in the management
process. In addition to organization function
and motivate function a conjunction between
the planning function and control function.
(allows you to make current and strategic
decisions and some control processes)

rdo: M. Sierpiska, T. Jachna, Ocena przedsibiorstwa wedug standardw wiatowych, Wyd. PWN, Warszawa 2004 r., s. 11.
The financial condition of the company

The financial condition of the company -

it is a particular state of its financial
management illustrated primarily by the
capital structure, the structure of assets,
profitability and ability to repay
obligations.
rdo: Finanse firmy jak zarzdza kapitaem, pod red. W. Szczsny, Wyd. C.H. Beck, W-wa, 2007, s. 244.
 Synthetic Assessment of Company
Research revenues, costs and various forms of
financial results;
The study streams of income and expenditure;
The study of capital resources and assets.

rdo: Finanse firmy jak zarzdza kapitaem, pod red. W. Szczsny, Wyd. C.H. Beck, W-wa, 2007, s. 244.
Thorough Assessment of Company
Thorough assessment takes into account some
aspects of the financial condition, including:
Profitability;
Efficiency;
Liquidity;
The rotation of the elements of working
capital;
Capital Structure
rdo: Finanse firmy jak zarzdza kapitaem, pod red. W. Szczsny, Wyd. C.H. Beck, W-wa, 2007, s. 244.
 Methods of financial analysis
The deductive approach from general
to details
The comparative method
Causal method
 The comparative method
The comparative method is a
comparison:
in time
in the space
with the benchmark
 Space comparative analysis
It is comparison of some category of financial
results for some company with the same
categories obtained in the same time for the
most important competitors or with average
data in the same sector of economy
 Benchmark comparative analysis

Benchmark comparative analysis

consists in compared to the
values obtained by the company
with the values generally accepted
as desirable
 Accountant focused on collecting information
on their recording and presentation of
information in the form of financial statements
Analyst analyzes the enterprise environment
and on the basis of the reports assess the
situation of the company and preparing
decisions for the future
 The analysis is an element of finance
because in money are expressed:
Revenue;
Costs;
Gains/losses;
Assets of the company;
Equity and liabilities.
 Entities interested in the financial
situation of the company
The management of the company;
Owners;
Partners;
Banks;
Inland Revenue, revenue office.
 Analysis of the situation of the entity is
an essential element of the financial
standing of the company, its competitive
position, reputation and economic
strength in the market
Analysis of business activity contain:
1) Analysis of business environment
Assessment of the social and legal rules;
Analysis of the market;
Analysis of competition;
2) The economic analysis
Financial Analysis;
Technical and economic analysis.
The range of economic analysis in
the company
Financial analysis
Technical and economic
analysis
 Types of analysis according to the
criterion
purpose of analysis;
time, which relate to analysis;
applied research methods;
detail of research.
 Criterion of analysis Types of analysis
External analysis
Purpose of analysis
Internal analysis
Retrospective analysis
Time, which relate to the analysis The current analysis
A prospective analysis
Functional analysis
Applied research methods
Comprehensive analysis
Decision-making analysis
General analysis
Detail of analysis
Detailed analysis
1. External Analysis - otherwise the annual report,
mainly for shareholders, investors, banks and
suppliers. This analysis includes:
- The financial statements
- The report on the state of the company
- Some other informations about the company
2. Internal analysis - for the management of the
company and includes an analysis of the basic
elements of financial statements, the financial
position of the company and factors affecting the
financial result
3. Retrospective analysis about the past
4. The current analysis - current assessment of
undertaking tasks. This analysis focus on
faults/deviations and allow to make the
necessary adjustments
5. A prospective analysis includes identification
and evaluation of various alternative solutions
- before deciding
6. Functional analysis - the study of separate phenomena by
isolated business cell
7. Comprehensive Analysis - broad global assessment of
economic activity and the economic situation of the company
8. Decision-making analysis - is confined to fragmented research
(concerning planned or completed task)
9. General analysis - carried out on the basis of some specific and
synthetic indicators (this analysis not examine the interaction
between economic phenomenons)
10. Detailed analysis - examines specific business segment or a
specific problem (explores the relationships of cause and
effect)
External factors of enterprise financial
decisions
inflation
economic conditions
fiscal policy
monetary policy
exchange rate policy
 Inflation

Is a persistent increase in the

general price level of goods and
services in an economy over a
period of time
 Inflation
The threat of erosion in the purchasing power
of money;
The increase in nominal interest on loans;
Risk of depreciation in the real value of
capital company;
The need for reliable data on inflation
(Eurostat, GUS - Main Statistical Office in
Poland) (the price index of consumer goods
and services, or the ratio of export prices, etc.)
 GUS website

http://www.stat.gov.pl/gus
 Economic conditions

Economic Cycle
 Economic Cycle
The natural fluctuation of the economy
between periods of expansion (growth)
and contraction (recession). Factors such
as gross domestic product (GDP), interest
rates, levels of employment and
consumer spending can help to determine
the current stage of the economic cycle.
 During times of expansion, investors seek to
purchase companies in technology, capital
goods and basic energy. During times of
contraction, investors will look to purchase
companies such as utilities, financials and
healthcare.
 Fiscal policy

Fiscal policy means a government

adjusts its spending levels and tax
rates to monitor and influence a
nation's economy.
 Monetary Policy

Monetary Policy is a policy where

a central bank influences a
nation's money supply.
 Monetary Policy
The actions of a central bank, currency board
or other regulatory committee that determine
the size and rate of growth of the money
supply, which in turn affects interest rates.
Monetary policy is maintained through actions
such as increasing the interest rate, or changing
the amount of money banks need to keep in the
vault (bank reserves).
 Fiscal policy and monetary policy are
used in various combinations to
direct a country's economic goals.