Business Environment Business Strategy Labor markets Scope of business: Capital markets Degree of diversifieation Product markets: Type of diversiiation Suppliers ‘Competitive positioning: Customers Business Activities Cost leadership Competicors ‘Operating activites Differentiation Business regulations Investment activities od Financing activities risks ‘Accounting Environment ‘Accounting Strategy Capital marker structure ‘Accounting System Choice of accounting Contracting and Memaeateor policies governance economic Choice of accounting ‘Accounting conventions ented estimates and regulations sere Choice of reporting format ‘Tex and financial accounting linkages ‘Third-party auditing Legal system for accounting disputes 1 Choice of supplementary disclosures Financial Statements Managers’ superior information an business activities Estimation errors Distortions from man= agers! accounting choicesrare) eee Financial Statements ‘Managers’ superior information ‘on business activities Noise from estimation errors Distortion from managers’ accounting choices (Other Public Data Industry and firm data ‘Outside financial statements Business Application Context Credit analysis Securities analysis Mergers and acquisitions analysis DebuDividend analysis Corporate communication strategy aralysis, General business analysis a oa ANALYSISTOOLS Business Strategy Analysis, Generate performance ‘expectations through industry analysis and com- petitive strategy analysis. | Accounting Analysis Evaluate accounting quality by assessing accounting policies and estimates. Financial Analysis Evaluate performance Using ratios and cash flow analysis. Prospective Analysis: Make forecasts and value business.