Economic analysis is the term which is used in the context of business, in the case of companies the emphasis is on accounting aspects of any transactions or project because whether its owners or shareholders, or creditors all look out for actual figures which is profit or loss made by the company during the financial year as any company is valued on the basis of profits it is able to achieve from the business it is doing while only a few pay attention towards the economic analysis of any transactions or project which the company has undertaken or will do in future.
Economic Analysis Meaning
Economic analysis refers to that analysis that does not ignore the economic viability of any project or transactions rather it examines all the aspects related to the project like financial viability of the project, environmental impact of the project, comparison of cost with the benefit of the project which is the case with financial analysis where only financial viability of any project is looked into that is how much cash flow the project will generate, how much profit company will make from the investment in the project and so on. In simple words, if the financial analysis is like XRay just like XRay shows the problem of bones but does not identify internal problems in the same way financial analysis shows only financial aspects related to the project but ignores economic aspect while economic analysis is like MRI just like MRI shows everything about the body of the patient in the same way economic analysis shows not only financial aspect but all the aspects related to the project and thus more comprehensive in nature.
Economic Analysis Example
Suppose a company has $100000 to invest and it has two projects from which the company can select only 1 project, now project A is more profitable based on profitability and financial aspects of the project but at the same time it will lead to pollution of nearby lake and environment than although financially going with the project is a good decision but if one examines the project on the basis of economic analysis than it is a bad decision as although financially it will be a profitable decision for the company but environmentally it will a bad decision and hence will be rejected if one goes by economic analysis.
Final Words on Economic Analysis
As one can see from the above that economic analysis is quite different from financial analysis while it is not mandatory to do economic analysis but as far as social accountability and responsibility of the company goes this analysis can be a stepping stone from companies when it comes to achieving the target of corporate social responsibility and can go a long way in improvement in reputation and brand image of the company in the eyes of consumers, employees, government and other stakeholders of the company.