An economic model is built to test different types of business goals that need to be tested. The economic models are divided into several main categories.

1. Financial models for calculating risk levels – models that determine the risk levels in the case of assessing the need for business financing, both by external capital and/or equity.
2. Models for business costing – these are models that check the cost components of income based on mathematical calculations or measurements carried concerning business activity categories.
3. Sales forecast models – these are regressive models, which are based on past data to predict the main variables responsible for the business results that may be obtained in the future
4. Models for predicting price fluctuations – these are models that test the marginal changes in prices according to internal variables of the business and according to sectoral – macroeconomic variables. For example: forecasting exchange rates, import costs and the like.

Cowley’s model

The “Cowley” model is an economic model aiming to calculate the level of risk of market prices by analysis of internal variables in the business and the extent of the impact of macroeconomic variables on the business itself. The purpose of the model is to determine the success or risk rates of a business that has existing internal data as well as macroeconomic industry data and the degree of their impact on business results.

The model is based on the analysis of the periodic balance sheets of the business and checking its internal variables and external variables. Also, assessment functions for determining the risk values have different results concerning industries and businesses.

In the same way, the risk interest rate can be calculated and the risk coefficient can be used to change the multipliers of companies traded on the stock exchange, by testing Qualitative and Quantitative Analysis of periodic financial reports in the parameters determined according to the characteristics of the industry (external variables) and internal variables of each company. In addition, it is possible to calculate aggregate risk according to the model, for the entire industry, and determine the standard deviation for the value of a traded company according to this level of risk.
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