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Macroeconomic Analysis
Or understanding the critical economic factors that affect your company
Objectives
A. Do you understand the global analysis framework and the importance of understanding global issues? B. Do you understand the critical areas of that global analysis framework, particularly economic analysis? C. Do you understand where to find key international economic data? D. Do you understand how to include economic data in your company report?
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Questions
Any questions on the global analysis framework and why it is important?
B. Understand Critical Areas of the Global Analysis Framework Global Economic and Political Analysis
(what is the world doing?) Country Economic and Political Analysis (whats happening in my main markets?) Global Industry Analysis (what is the global industry doing?) Country Industry Analysis (whats happening in my main industry?) Company Analysis (whats happening with my company?)
3. Business cycles
Troughs and peaks
4. Forecasting
Tools to help
1. Government Policy
Fiscal Policy - government spending/taxing actions as part of demand-side management
Direct policy to implement, but hard to decide on Therefore difficult to use to fine-tune the economy Look at the governments surplus or deficit This will show the governments spending program Monetary Policy - manipulation of the money supply to influence economic activity, also a demand-side activity Easy to formulate, but takes a longer time to work through the economy
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3. Business Cycles
How does the economy perform, and how does the industry perform under various economic conditions? Business Cycle
Peak Trough
Other variables
Elections, Katrina and Rita, etc.
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Problem
Why do you think the index of consumer expectations is a useful leading indicator of the macro-economy?
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Answer
The index of consumer expectations is a useful leading economic indicator because if consumers are optimistic about the future they will be more willing to spend money, especially on consumer durables, which will increase aggregate demand and stimulate the economy.
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Questions
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Questions
Any questions on the key sources of international economic information?
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Sales Growth
Compare how sales have grown historically within the economic setting Has sales growth increased even in difficult times? They may likely continue in the future Has sales growth declined in difficult times? This may also continue in the future
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Questions
Any questions on how to include your economic data into your forecasts?
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Review of Objectives
A. Do you understand the global analysis framework and the importance of understanding global issues? B. Do you understand the critical areas of that global framework, particularly economic analysis? C. Can you find sources of data for your international economic prospects? D. Do you know how to write up the industry report?
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Key Information
Key Information
Industry Sub-sector Major Industry Country Industry Type Use the six types as discussed by Peter Lynch on page 400: Slow Growers, Stalwarts, Fast Growers, Cyclicals, Turnarounds, and Asset Plays Key Indices Include which items are included in the index, i.e. price, price earnings, dividends, etc.
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Analysis
You can determine the type of analysis
Positive Factors and Negative Factors Put these in the order of importance, most important first Strengths, Weaknesses, Opportunities, Threats Clearly delineate which of these are most important Regardless of your type of analysis, make sure you cover the industry clearly
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Return Performance
This is the relative total return performance versus the market and industry indices (see IR-2A Getting Industry Total Returns) Include your market index and industry index (note: your industry index does not need to have PE data to be included here. All it needs is total return data) Excess is the difference between the industry return and the market return GDP Return is the GDP real growth rate for the year from FR-2A Company Financials - AAPL Section 19) By seeing how the industry and economy has 37 performed together, it will give you an indication of