Macroeconomic Environment Analysis

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The macroeconomic environment of a firm as suggested by Oxelheim, L. and C. Wihlborg., (1987) is constituted by a set of four relative prices; the inflation rates, interest rates, exchange rates and political risk premiums (the premium charged by the company for the rules about the uncertainty of the market game). In any developing economy, it is important to consider these particular macroeconomic variables and how their behavior over time affects the company’s health and ultimately its survival. In recent times, the increased integration of the market as well as the correlation between macroeconomic fluctuations and the performance of individual firms has resulted in the need to describe and explore this linkage with regard to company development.…show more content…
Enos, (2007) also explored performance as an achievement of tangible, specific, measurable, worthwhile and personally meaningful goals. A company, therefore, is regarded as technically efficient if it is able to obtain maximum outputs from given inputs or minimize inputs used in the production of given outputs given the macroeconomic conditions prevailing over the period under consideration. This study emphasizes on the relationship of the gross domestic product, inflation rates and exchange rates on both the stock prices of the firm and its (future) earnings. The research’s major proposition is that the macroeconomic indicators mentioned have a direct impact on the business performance level, the earnings as well as the stock prices. This information would be of particular importance to investors, management, shareholders, analysts and auditors who each have specific vested interests in a…show more content…
International Accounting Standard 1(ISB), sets out the requirements for financial statements, including how they should be structured, the minimum requirements for their content and overriding concepts. It however falls short in accounting for the reporting of these influences, even though it continues to be revised. Oxelheim, L. (2002) states that accounting for the effect of a changing macroeconomic environment is static and partial. It is partial since it ignores the interrelation between the macroeconomic variables in question. It is also partial since it only recognizes the effects of items denominated in foreign currencies. Moreover, volume effects due to changing exchange and interests rates are ignored, fuelling the criticism that it is both partial and

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