Learn how to do External Analysis of a company (with examples)

If I say in a line, economic factor analysis helps you know where the economy of a country is heading.

Economic factor analysis is the study of following indicators:

Value of commodity substitutes to the local currency, balance of trade, corporate profits, interest rates, currency strength, consumer price index or inflation, rate of unemployment, income and wages, gross domestic product changes, new business startups frequency and count, housing market, building permits, retail sales, inventory levels, manufacturing activity, and stock market.

No doubt this list is huge. And you may end up burning your mid-night oil figuring out each of these indicators.

But with the right approach, you can get this done. I have explained the economic analysis method you can adopt in the next lesson.

If you understand the economy of a country, you can decide whether your company can survive in an economy and for how long.

You may have heard about the economic crisis of 2007-08. Some financial issues came up and most of the economic indicators went into red zone. People and businesses failed to predict the issues. Even far from it!

Everyone was ecstatic on the growing economic prosperity everywhere, which in reality was an economic bubble. An economic bubble comes when the speculated price of assets strongly exceeds to that of the asset’s intrinsic (actual) value.

And just like a soap bubble, burst happened and everything fell apart. People lost their beautiful houses and the sale and purchase of almost everything got hit.

Such is the impact of failure to understand the economic situation of an economy.

Therefore, if you want to open a business in a country, you have to know the level of economic stability of that country. Now let us go to the next chapter to learn how you can do economic analysis.