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The impact of macroeconomic factors on financial analysis.

Mohammad Jalali*
Research Center, FANAP Co, Tehran, Iran

Introduction When the economy is growing, businesses tend to do well as

Macroeconomic factors play a significant role in the financial
analysis of a company. Economic factors such as inflation,
interest rates, GDP growth, and government policies directly
impact the performance of a company. Financial analysts need
to consider these macroeconomic factors while evaluating
the financial health of a company. Financial analysis is an
essential part of evaluating the financial health of a company.
Financial analysts use various methods to assess a company's
financial performance, including ratio analysis, cash flow
analysis, and trend analysis. However, macroeconomic factors
such as inflation, interest rates, GDP growth, and government
policies can significantly impact a company's financial health.
These macroeconomic factors affect a company's profitability,
growth potential, and risk levels. Therefore, financial analysts
need to consider these factors while analyzing a company's
financial statements [1].
Impact of macroeconomic factors on financial analysis-
Inflation-Inflation is the rate at which the general level of
prices for goods and services is rising, and the purchasing
power of currency is falling. Inflation can significantly impact
a company's financial health by increasing its operating costs
and reducing its profit margins. Moreover, inflation can also
affect a company's revenue growth as consumers tend to
cut back on their spending during periods of high inflation.
Therefore, financial analysts need to consider the impact of
inflation while evaluating a company's financial statements
[2].
Interest rates-Interest rates have a significant impact on a
company's financial health as they affect the cost of borrowing
and the return on investment. When interest rates are high,
borrowing becomes more expensive, and companies may
have to pay higher interest expenses on their debt. Moreover,
high-interest rates can also reduce the demand for a company's
products and services as consumers tend to cut back on their
spending. Therefore, financial analysts need to consider the
impact of interest rates while analyzing a company's financial
statements [3].
GDP growth-GDP growth is a measure of the economic
performance of a country. It reflects the overall growth of the
economy, including the growth of businesses and industries.
GDP growth can significantly impact a company's financial
health as it affects the demand for its products and services.
consumers have more money to spend. On the other hand,
when the economy is contracting, businesses may struggle
as consumers tend to cut back on their spending. Therefore,
financial analysts need to consider the impact of GDP growth
while analyzing a company's financial statements [4].
Government policies-Government policies can significantly
impact a company's financial health, particularly in regulated
industries such as healthcare, energy, and finance. Government
policies can affect a company's profitability, growth potential,
and risk levels. For example, changes in healthcare policies
can impact the revenue and profit margins of healthcare
companies. Similarly, changes in energy policies can affect the
revenue and profit margins of energy companies. Therefore,
financial analysts need to consider the impact of government
policies while analyzing a company's financial statements
[5]. Macroeconomic factors play a significant role in the
financial analysis of a company. Inflation, interest rates, GDP
growth, and government policies can significantly impact a
company's profitability, growth potential, and risk levels.
Financial analysts need to consider these macroeconomic
factors while evaluating the financial health of a company. By
taking these factors into account, financial analysts can make
more informed decisions and provide more accurate financial
analysis [5].
References
1. Amiram D, Bozanic Z, Rouen E. Financial statement errors:
Evidence from the distributional properties of financial
statement numbers. Rev Account Stud. 2015;20:1540-93.
2. Persons OS. Using financial statement data to identify
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Appl Bus Res. 1995;11(3):38-46.
3. Stickney CP, Brown PR, Wahlen JM. Financial reporting,
financial statement analysis, and valuation: A strategic
perspective. 2007.
4. Dewi N, Azam S, Yusoff S. Factors influencing the
information quality of local government financial
statement and financial accountability. Manag Sci Lett.
2019;9(9):1373-84.
5. Goldstein I, Yang L. Information disclosure in financial
markets. Annu Rev Financial Econ. 2017;9:101-125.

*Correspondence to: Mohammad Jalali, Research Center, FANAP Co, Tehran, Iran, E-mail: mohammad.jal@fanap.ir
Received: 31-Jul-2023, Manuscript No. AAJFM-23-113853; Editor assigned: 04-Aug-2023, PreQC No. AAJFM-23-113853 (PQ); Reviewed: 17-Aug-2023, QC No. AAJFM-23-113853;
Revised: 26-Aug-2023, Manuscript No. AAJFM-23-113853 (R); Published: 31-Aug-2023, DOI:10.35841/aajfm-7.4.195

Citation: Jalali M. The impact of macroeconomic factors on financial analysis. J Fin Mark. 2023;7(4):195

1 J Fin Mark 2023 Volume 7 Issue 4