ACC 345 Harriet Creyer 4-2 Assignment- Economic Indicators and Valuation Discounts and Methods

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Nov 24, 2024

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1 Economic Indicators and Valuation Discounts and Methods Harriet Creyer 4-2 Assignment: Economic Indicators and Valuation Discounts and Methods Southern New Hampshire University ACC 34 Financial Statement Analysis/Business Valuation
2 Economic Indicators and Valuation Discounts and Methods Economic Indicators Explain what economic indicators are and why they are important to a company. Economic indicators are measurements that tell us information about the state or functioning of an economy in a nation or region. They are taken from information such as production and inventory data, inflation rates, consumer expenditure, and employment statistics. Economic indicators are used by businesses to understand their current operating market conditions and general economy, (Indeed Editorial Team,  Understanding Economics  2022) . A corporation might utilize three sorts of economic indicators, namely leading, lagging, and coincident indicators to spot trends, opportunities, and dangers, and analyze its business processes, and retool them as needed to remain competitive. Changes in economic indicators can be produced by monetary policy modifications and trade conflicts; their implications vary, including lower demand for goods and increased importation prices. Identify three types of economic indicators that a company might use to inform its business decisions. Leading indicators, lagging indicators, and coincident indicators are the three categories of economic indicators used by businesses. Leading indicators offer insight into upcoming economic performance or changes and shift or any possible market problems. Lagging indicators offer an idea into historical changes by tracking the performance of the economy overall or in particular industries. GDP, corporate profits, and unemployment rates are a few examples of lagging indicators. Coincident indicators follow the general economic
3 Economic Indicators and Valuation Discounts and Methods trend and are used to evaluate the state of the economy. These could include personal income, employment rates, and industrial production. (Dan,  Economic indicators  2013) Explain how a company might make business decisions based on its knowledge of economic indicators. By analysing the trends and patterns of these indicators, businesses can use their understanding and knowledge of economic indicators to make their decisions. For instance, if a business notices that consumer confidence is dipping, it might decide to cut back on production and inventory because there may be a drop in demand for its goods. Similarly, to this, a business can decide to implement a hiring freeze rather than increase its workforce if it notices rising unemployment rates. By analyzing the economic climate, organizations may also anticipate regulatory changes and make necessary improvements that can benefit their business. Explain any significant changes that have affected economic indicators over the past three to five years. Include the following detail in your response: Explain what you think caused the changes to occur. Over the previous three to five years, numerous economic factors have seen considerable changes owing to various circumstances. The global decline in interest rates is one illustration of a substantial development. In several nations, interest rates have fallen sharply in an effort to spur economic expansion and lower inflation. Indicators of the economy can also change as a result of geopolitical unrest or interruptions in global commerce, as was the case with Brexit.
4 Economic Indicators and Valuation Discounts and Methods Explain the impact the changes to the economic indicators have had on both domestic and global economies. The impact of changes in economic indicators differs in various nations or areas, with both positive and negative effects. For example, a drop in interest rates may encourage investing, borrowing, and spending, which would increase economic growth. Yet, this fall in interest rates might also start inflation and a corresponding decline in investments. Explain how a company should respond to changes related to domestic and global economies to remain in business and competitive. For a company to stay competitive and adaptable, businesses should act quickly in response to changes in the national and international economies. One way is to determine the most crucial economic indicators relevant to their sector and monitor them often to predict changes. This can help organizations plan effectively for declining demand or increasing costs of inputs. They should also be examining company strategies and their operation on a regular basis to try to increase efficiency and cut expenses. By implementing strategies to respond to changes in economic indicators, companies can improve market opportunities, mitigate risks, and maintain profitability. Valuation Discounts Explain the discount for lack of control (DLOC) and when it is used in the valuation process. The Discount for Lack of Control (DLOC) is applied when valuing a minority interest in a business. It accounts for the potential loss of decision-making power and the limited ability to influence or direct company operations as a minority shareholder. DLOC varies
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