Lo’ai Batainah –
I used to ask myself if I know all financial indicators as well as their standards and significance until someone asked me about the difference between the financial and economic standards. I answered him, but not in detail as required to avoid the misinterpretation of some confusing terms that may have the same meanings and implications.
Any activity is controlled by some financial and economic indicators that should be identified and measured. Such indicators are also used to determine the conditions and financial position of any state, which should be analysed and compared with these of other states.
The financial and economic indicators are considered the fundamentals on which analysts and investment managers rely.
Economies and sectors are based on these indicators to achieve sustainability, and these indicators are used in the process of making financial and investment decisions, as any state, sector or company is based on the financial indicators that have other sub-indicators to measure the financial, economic and social performance.
Several people who are not specialised in the financial and economic analysis face difficulties in reading the financial statements and their financial, economic and statistical significance.
They need some time to understand the financial statements, the financial tables and the statistical tables. They also need to get the key financial indicators that will help them understand and analyse the performance of these countries as well as their sectors and companies.
For example, when a company or a country posts its estimated or actual budgets on the websites, social networks or newspapers, investors targeting this country or this sector or monitoring the financial and economic performance of any country or sector should first study the financial, economic and statistical statements of the country or sector.
They should also study the historical performance of the country or the sector as well as any other factors and conditions impacting the financial and economic performance. In addition, investors should identify the strengths and weaknesses of the sector or the country.
To achieve the general objective of the corporate financial statements, there are other sub-objectives that should also be taken into account, such as the data included in the financial statements that help provide useful information for several entities.
This entails providing useful financial information for the users of the financial statements, with no need to provide detailed financial information for each entity separately.
The entities using the financial statements in general, include the board of directors, the executive management (they also get internal financial reports), the general assembly meeting, tax authorities and creditor banks.
In light of the financial conditions witnessed by countries and companies, analysts should study the cash flows of countries, sectors and companies.
They should identify whether these cash flows are positive or negative, as most countries face big financial deficits, and it is difficult to finance them internally, except through borrowing that weighs on the liquidity of the banking sector as well as several financial and economic indicators.
This in turn will lead to increasing the cost of financing and capital whether operating or continued. Accordingly, analysts should focus on the liquidity and cash flow indicators of the countries and companies.
In addition, analysts should identify the activities that generate strong cash flows for countries and companies. They also should know the mechanism of using cash flows in these countries and companies. Thus, analysts will be able to measure the future performance of these companies and countries, as well as their abilities to plan for the long and short-term.
We may not have detailed information about the financial performance of countries, except for the figures of the budgets or the financial and statistical disclosures posted by the government information centres.
However, companies provide detailed financial information, because they are listed on the stock markets and their information should be announced, in line with the financial, supervisory, accounting and legal requirements.
The financial statements as well as the financial and statistical tables are prepared to provide the necessary financial, economic and statistical information for the users of these tables and statements, including the government departments, company management, shareholders, suppliers, banks and regulatory authorities.
The purpose of these indicators is that they are used to help the governments, officials, legislators, board members, shareholders and officials of the executive management read and understand the financial and economic statements issued by the governments and companies.
Thus, such indicators help them play their role of strategic planning, legislation and operation for these governments, sectors and companies, as well as following up the financial, operational and investment performance and taking the necessary decisions to develop the performance and achieve the goals effectively.