The article examines problems of economic analysis in management of business entities.  It is pointed out that economic analysis is objectively an essential element of company management and one of economic research stages, as well as a management activity function. The article provides an economic research algorithm, which includes monitoring, diagnostics and analysis of the investigated object. Besides, the effect of objective economical laws is settled together with the necessity of study of their manifestation in economic activity management.

A physician struggles for human health, while an analyst struggles for economic health of enterprise, organization, region, and state as a whole.

It is insufficient for management entities to keep informed in the sphere of market economy only. They should be able to read it, process, make right conclusions, and use them for the purpose of taking efficient managerial decisions.

Possession of information implies the following: availability of necessary data on the interested object, their processing and usage of information, processed for taking of corresponding managerial decisions.

Information processing implies the following: carrying out of monitoring, diagnostics, and analysis of available information.

Basic information base, characterizing financing and operating activity of the company, is bookkeeping (financial) and management accounting.

Formation of external reports refers to the sphere of financial accounting, which is rigidly subordinated to standard principles, and formation of internal reports refers to the system of management, less regulated accounting.

The notions «management» and «financial» accounting and analysis come to us from modern foreign literature.

Distinction between financial and management accounting was specified in the year 1972. by the USA National Association of Accountants (NAA) at the development of the programme for Certified management Accountants (СМА).

Information, presented in the financial statements of enterprises, is of some interest for various user classes: entrepreneurs, managers, creditors, potential investors, suppliers etc.  For example, performance evaluation of effective organization work is vital for entrepreneurs, as well as where their means are invested and what the efficiency of their use is. Managers are mostly interested in the efficiency of accounting transactions, recourses used, and economic activity findings. Owners and shareholders are mostly interested in profitability of their invested capital assets, i.e. prospect evaluation, return of capital assets; suppliers are interested in possibility of the company to pay timely for the delivered goods and services.

Management accounting presents information on production and business activity of the company, i.e. internal company problems: size, cost and efficiency of production resource use, determination of expenses, organization of centers for manufacturing work, its quality, price competitiveness, realization sphere, on which financial results depend and serve for the the objective of the company’s chief executive.

Information, which is contained in management accounting, is available only for the employees of the given company and their authorized representatives, performing management analysis.

Management analysis is an objective requisite for the corporate governance and is one of the economic research methods on the use of basic economic laws and regularities in the course of management of economic activity.

Every employee, engaged in the analysis of economic activity management of the company, as well as using the data on the financial accounting, should be able to read and analyse the accounting balance-sheet and other forms, understand their articles, know their specific economic categories and factors, as well as draw conclusions and recommendations for taking efficient managerial decisions.

Economic analysis is an objective requisite of corporate governance, and is one of economic research stages and functions of economic activity.

Enterprise is like a living organism, in which the flows of monetary, material, labour and financial resources, typical for certain objective economic laws and regularities, found in accounting and financial reporting, factors, are realized.

Analyst is like a physician, based on the information valuation (monitoring), stored in the business and management accounting, and reporting, defines the diagnosis of financial and economic condition of the enterprise, and then, based on the economic analysis, identifies the reasons and factors, which affect the business activity, develop methods for the elimination of existing disadvantages and recommendations for the efficient management of business economy.

Thus, a physician struggles for human health, while an analyst struggles for economic health of enterprise, organization, region, and state as a whole. 

Economic analysis, like a management function, includes the evaluation of internal and external factors, affecting the condition of business activity, development trends of economically possible reserves for productivity enhancement; stipulates the evaluation of intensification degree in the accomplishment of target figures on all criteria, and the elaboration of recommendations on the elimination of identified deficiency use of detected reserves, and perfection of corporate economy.

Every head officer and entrepreneur should take efficient managerial decisions in conditions of stiff competitions and crisis. Any economic decision at any level should be based on the manifestation knowledge of objective economic laws in business activity, and on the real state of internal and external factors and tendencies of their adjustment.

Both economy and nature have processes and phenomena, which have accidental and regular character. These processes and phenomena usually have a steady or accidental, long-term or short-term cause-effect relationship. Their perception allows giving scientific credence to the evolution of economy processes, predicting and defining future development trends. Cause-effect relations can conceptually be subjective and objective.

Subjective ones are a complex of individual behavioristic characteristics, economic awareness and thinking, grounds of business activity, economic interests.

Objective ones are cause-effect relations, not depending on the will and awareness of individuals. In practice subjective and objective cause-effect relations often do not coincide in the results of business activity and may even contradict to each other.

Objective cause-effect relations, having a profound impact on the economic growth, refer to the category of economic laws.

Economic laws are objective recurrent steady cause-effect and functional relations between economic phenomena, processes. Alternately stated, economic laws are the manifestation of stable relations between people, which are developed in the course of manufacture, distribution, exchange and consumption, which are at the same time manifested as interests. They have an objective nature and do not depend on the will and awareness of individuals.

Economic laws can be divided into the following groups:

1. General economic laws are laws, which are peculiar to one and all historic epochs, proprietary forms and business activity. They are usual to be called «basic economic laws»

2. Specific economic laws preserve sertain stages of business activity. For example, laws of investment processes, the use of material, labour and financial resources, realization of  goods manufactured etc.  

General economic laws are steadier and act in all economic systems, proprietary forms and manufacture. For example, the law of value, the law of supply and demand, the law of economic growth, the law of savings, the law of productive efficiency etc. 

The law of value is an economic law, according to which manufacture and exchange of goods take place on account of their value, the amount of which is defined by the socially necessary labor time. It regulates relations among manufacturers, as well as distribution and encouragement of work in conditions of commodity production.

This law is typical for all proprietary forms, business organizations and public production formations. Violation of this law, irrespective of the will and desire of any person holding various economy management levels and who is responsible for the economic growth of the country, region, or independent company, will cause irreversible effect.

The law of supply and demand regulates relationships between price and value of product or service demand within a definite period. This dependence lies in the fact that with increase of manufacture and supply of goods or services its supplementary consumer utility will decrease, thus, causing the lessening of demand and price for them.

Basic requirements of the objective economic laws, which should be followed by at the management of commercial activities and controlled at the analysis of business activity, are as follows:

1. Increase in production should be accompanied by the efficient use of material, labour and financial resources, increase in labour productivity, economy of manufacturing and nonmanufacturing costs.

2. Production expansion and realization of products should be accompanied by the increase in earnings and profitability.

3. Increase in production, should be basically carried out for account of intensive factors, at the full use of extensive factors and intensification of production.

4. Growth rate of labour productivity should exceed growth rate of labor compensation fund and quantity of production and nonproduction workers. As a result the growth of labour productivity should lead to economy of labor compensation fund.

5. Growth rate of marginal profit should exceed growth rate of constant costs.

6. Innovation rate of investments should have a tendency of constant growth.

7. Any modernization should be accompanied by the raise of efficiency factors of business activity.

Every economic law and associated regularities have their specific functions in the line of definitely conditioned frames within every economic system.

Cause-effect relations refer to specific economic laws of economic development; they take place in the course of commercial activities, as a whole, and various stages of economic activity. 

There are the following stages of economic activity: financial enterprise conditions; use of basic and current assets, labour resources; manufacturing-oriented activity, and realization of products; investment activity of enterprise.

Analyzing financial conditions of enterprise, it needs to be defined, which economic regularities are typical to a particular stage of economic activity, as well as their action in accordance with basic economic laws.

There are the following regularities, which refer to financial condition of enterprise:


  • liquidity — when rapid liquid assets should exceed current liabilities;
  • creditworthiness — when there are sufficient cash assets for debt repayment, according to which credit period starts;
  • business solvency — when the enterprise is financially independent from obligations, i.e. investors and creditors;
  • profitability — when the enterprise has a steady profit, income overgrows expenditures.


There are the following regularities, which refer to investment activity of enterprise:


  • repayment is a capital investment for a definite period of time with mandatory recovery condition;
  • earning power ratio is a capital investment under the condition of income acquisition as interests, dividends, and deductions from profit;


There are the following regularities for the use of capital and current assets:


  • cost recovery — facilities, committed in the capital assets, must must returned, in the form of amortization expenses within a given time of their use
  • effective strength – facilities, committed in the capital assets should produce a profit within economic life, i.e. pay their way;


Utilization regularities of labour resources:


  • tendency of constant growth of labour productivity;
  • growth rate of employee number must be below the growth rate of actual production volume and labour productivity;
  • growth rate of labor compensation fund must be below the growth rate of actual production volume and labour productivity, i.e.; systematically achieve the economy in labor compensation fund, at the raise of nominal and real payment for the labour of employees.


Non-conformance to basic requirements of objective economic laws and regularities, as a result of economic illiteracy or their violation for the purpose of short-term benefit, lead to disbalance of phenomena in economic activity and, eventually, to crisis and bankruptcy.

The history provides many examples of cases when violation of economic laws and regularities resulted in the economic collapse of the whole country, regions, and bankruptcy of independent enterprises.

Economic analysis is a separation of studied economic phenomena into its separate parts (economic categories), the study of these categories, reasons and factors, which have influence on their change, determination of compliance of these changes to economic regularities, as well as development of recommendations for the management decision making on the elimination of detected drawbacks and enhancement of efficiency on the ground of all this.

All that is possible, when a director of any grade and level has a highly trained apparatus to help study the economy of enterprise, region or branch as a whole, taking into account objective economic laws, and then to prepare efficient recommendations for the management decision making.

Economic research includes three stages: preparatory work, monitoring and analysis of object under study (table1.).


Table 1


Algorithm of economic research

Preparatory work



Analysis of object under study


1. Determination of the objective and task of research

5. Collection of necessary information

11. Comparison of effective and estimated activity figures of the object under study with the data of plan and prior period (year).

2. Study of technique and norms, associated with the studied object

6. Information validity and credibility test.

12. Dynamics of effective and estimated figures for a series of years, detection of regularity adjustments

3. Detection of economical category, methods of they evaluation, current technique on the investigated object.

7. Preparation of information materials for the study

13. Determination of factors and reasons of internal and external environment on the effective and estimated figures of the studied object activity

4. Elaboration of a plan and programme for the investigation

8. Evaluation of qualitative and effective figures of the studied object

14. Impact estimation of factors on the effective and estimated figures of the studied object activity


9. Comparison of estimated figures with plan data, established standards and a prior period

15. Grouping of factors and reasons according to their positive and negative impact on the effective and estimated operating rates of the studied object


10. Diagnostic establishment of the studied object (summary monitoring report)

16. Study of every factor and reason.



17. Grouping of factors and reasons depending or not depending on the activity of activity company’s management team



18. Development of recommendations on the acceptance of managerial decisions (summary analysis report)


Preparatory work includes the following: determination of the research objective and task; study of methods and regulatory documents, connected with the studied object; definition of economic categories, methods of their evaluation, current technique on the studied object; elaboration of a plan and investigation programme.

Preparatory work is one of important stages of any investigatory activity. As it is seen from the mentioned algorithm of economic research (Table 1.), preparatory work primarily involves determination of the goal and task of the forthcoming research: study of condition, security, efficiency of fund application, development of specific recommendations on their improvement etc.

For this it is necessary to acquire research methodology of all questions associated with the studied object, as well as instructive and regulatory documents in accordance with their activity.

Any person, performing an economic research, should possess economic categories characterizing the studied object, as well as methods of their evaluation.  As a rule all that is achieved by the knowledge of methodological recommendations and economic literature on the given research issue.

Preparatory work proceeds to completion by the development of a specific clear plan and an investigation programme.

Monitoring is a technique and observing system for the condition of a particular object or process. It enables to observe their development, evaluate, and promptly identify the effect of various external factors.

Monitoring of the studied object includes gathering of relevant information, validation and actuality check of information, preparation of information material for study, valuation of qualitative and effective indicators of the studied object, comparison of estimated figures with the plan data, standards and prior period. Monitoring is completed upon the establishment of the diagnosis of the studied object (summary monitoring report).

It is necessary to carry out the analysis for a more detailed study of condition, dynamics and impact of reasons and factors, which have influence on the operating results of objects.

Analysis of object under study: comparison of resultative and estimated operating rates of the studied object with the plan data and previous period (year); dynamics assessment of resultative and estimated rates for a series of years and revelation of alteration regularities on their basis; determination of factors and causes of internal and external environment on the resultative and estimated operating rates of the studied object; estimation of factor impact on the resultative and estimated operating rates of the studied object; grouping of factors and reasons according to their positive and negative impact on the effective and estimated operating rates of the studied object; study of every factor and reason, Grouping of factors and reasons depending or not depending on the activity of activity company’s management team; development of recommendations on the acceptance of managerial decisions (summary analysis report).

Monitoring is completed upon the diagnosis establishment of the studied object, and then recommendations for the management decision making on the elimination of detected drawbacks are developed based on the analysis and the use of reserves for the efficiency enhancement of the studied object operation.

Processes of integration of economic analysis and management become topical in the period of transition to market relations; they interact with two management conceptions of economic activity and business activity of enterprise. Interaction of management (as a management conception) and economic analysis (as a conception of information support of management) offers an opportunity for the activation of business activity and decrease of risk of false managerial decisions adoption. It is easier to control business activities and use material labour and financial resources of the organization for managers in case of more advanced system of financial and management accounting and analysis.

One of crucial points in the economic analysis approach is determination of criteria and indicators, characterizing condition and use, as well as factors, affecting the alteration of quantitative, qualitative and resultative operating rates of the studied object.

Criterion is a distinguishing feature, standard, on the basis of which any phenomenon is given evaluation.

Indicator characterizes this criterion from the quantitative side.

For example, criterion of financial results is getting of maximum profit.  The criterion of efficiency is the achievement of the highest effect at the least costs, or the achievement of great operating results of enterprise at the same resources. There are the following indicators, characterizing financial results of business activity of enterprise: the amount of total profit, profit on sales, profit before taxation, net profit and undistributed earnings. The efficiency of business activity is defined by the following indicators:  level of profitability, return on assets ratio, working capital turnover, labour productivity etc.

Factor means casual relationships in Latin.

Factor – is an indicator of internal and external environment, which has impact on the resultative indicator of economic activity.

We should distinguish between «factor» and «reason». In spite of the fact that these two words are synonyms, «factor» in economic literature means causal connection, offering constant impact on the resultative indicators, which should be considered at planning and analysis of business activity indicators. This is, for example, provision of primary production, materials, labor forces etc.

«Reason» is also casual connection, affecting the operation profit, but having no constant nature. This is, for example, a natural disaster, theft, banditism etc. It is only possible to anticipate them, and to be secured creation of funds, conclusion of insurance contracts etc.

Formation of factor of internal and external environment depends on concrete condition, type, time, place of operation of the enterprise.

Factors of internal environment of enterprise are actions associated with managerial decisions within the enterprise. As a rule, one can distinguish 6 groups of dominant internal environment factors: staff, technology, material resources, Research and Advanced Development, company location, and management. They, in their turn, are further subdivided into subgroups.

All factors of internal environment show direct impact on business activity indicators. They should be considered by managers at planning, economic analysis and management decision making.

Environmental factors refer to uncontrolled ones on the side of administration of the organization and its services. These are, for example, suppliers, decisions of state authorities, shift in demand on goods, rivals, fiscal system etc.

Environmental factors have an objective effect on the company strategy, as well as on all quantitative and qualitative indicators of business processes.

All factors of internal and external environment should be examined and taken into account at the strategy generation and management technique of enterprise, development of current and long-term plans and analysis of financing and operating activities.

The basic analysis and management of internal and external environment is the fact that every factor must be measured, estimated and accepted on its managerial decision.

Deterministic and stochastic; additive and multiplicative methods and approaches are used at the calcilation of the influence impact.

Deterministic model (from Latin «determino») the theory on the objective law, interrelation and interdependence. Deterministic model considers direct factors, subject to the quantitative evaluation, showing direct impact on the resultative indicators.

The following methods are used for the calculation of deterministic model effect: additive decomposition of key figures, multiplicative model of factor impact, adjusted indicators, chain substitutes, absolute and relative amounts, and balance method.

Stochastic modeling means the ability to guess from Greek «stachostiros». This method is used at the determination of factor impact, which has direct impact on the profit-and-lost indication.

The following methods are used for the calculation of stochastic factor effect: correlation, rating, regression and linear programming.