The Value Of Financial Ratio Analysis

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When the economy expands, most industries and companies benefit and grow with it and the reverse is true, that is why it is important for analysts or even individual investors to keep an eye on the economy to determine when it is going to be beneficial for them to invest their money. The economic environment indicators assist these investors in determining the state of the economy. In this paper, I will describe the methods used to assess the macroeconomic environment, discuss the value of financial ratio analysis in the context of common stock investing and compare intrinsic value and market price. Macroeconomic environment Unlike their counterparts during the great depression, financial policymakers today have enormous statistics at…show more content…
Employment indicators The unemployment rate measures the rate at which the economy is operating at full capacity. It also has its roots embedded in the great depression when the rate reached about 25% (rbcpa.com). The unemployment rate is defined as the percentage of unemployed workers in the entire labor force (Bodie, et al, 2011). When people are unemployed the economy loses their contribution in terms of goods and services. The increase in the percentage of unemployed indicates the extent of economic hardship faced by the nation, therefore it is important for policymakers to know the number of unemployed workers in an economy in order to make better decisions in regards to the growth of the economy. Government fiscal and monetary policy Fiscal policy-is the ability of the federal government to increase and decrease its spending, if government spending is zero, there will limited economic growth (Mitchell, 2005). Current government borrowing shifts the burden to future generations to repay debt. An example of how this policy has been used in the past to improve the economy is when the Federal Reserve System lowered its discount rate and in early 2008 Congress passed the Economic Stimulus Act of 2008 (govtrack.us). The legislation gave taxpayers a tax rebate in the form of a check up to $600 for single filers, $1200 for married couples filing jointly (cnn.com). The hope was that consumers would take these checks and spend them to help keep the economy moving

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