Evaluating Economic and Financial Risk Factors

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Traditionally, economists have debated the concept of value and how to quantify it. Economics is a field that studies the economy, global markets and human behaviour. The field is built on foundations of microeconomics and decision theory. In theory, economic evaluations and planning exercises are designed to take a societal perspective and include payers. But in practice, they often focus on the perspective of the payer.

A recent study seeks to evaluate the economic and financial risk factors of 2110 SMEs in the V4 countries. A log-linear model was used to estimate odds ratios for countries and higher risk perception levels. It is important to understand that both financial and economic risks are closely related.

For example, if a company’s balance sheet is strong, then it is less likely to go bankrupt. However, if demand for the company’s products and services begins to decrease, then the company might face financial distress. Similarly, if interest rates increase, then energy prices could increase.

Financial and economic analysis are important in evaluating projects. The economic analysis should consider the opportunity costs of a project. It should also consider how it can benefit society. Financial analysis focuses on covering costs and revenues. Generally, it will be paid for by the payer, but other stakeholders might not include it in their books.

As part of the study, a second log-linear model was developed to compare financial and economic risk sources. It was found that financial risks are more likely to be associated with economic risks.

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