Business Analysis - PowerPoint PPT Presentation

Business analysis l.jpg
Download
1 / 31

Business Analysis. We will study the first phase of business analysis, focusing on internal and external analysis. Where We Are Going. Chapter 3. First Phase of Security Analysis. Business Analysis. GAAP Financial Statements. Financial Statement Analysis. Forecast

I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.

Download Presentation

Business Analysis

An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -

Presentation Transcript


Business analysis l.jpg

Business Analysis

We will study the first phase of business analysis, focusing on internal and external analysis

Where We Are Going

Chapter 3


Slide2 l.jpg

First Phase of Security Analysis

Business Analysis

GAAP

Financial

Statements

Financial Statement

Analysis

Forecast

Assumptions

Valuation

Time

Historical Periods

Valuation Date

Forecast Periods


The key to developing a forecast is to l.jpg

Understand the business

Goal of this chapter is to develop a way of analyzing an unfamiliar business

The Key to Developing a Forecast is to


Business analysis4 l.jpg

Business Analysis

  • Highlights issues we need to study further in the financial statement analysis stage

  • Business analysis usually does not provide numerical answers for valuation assumption, then what’s its purpose?


Financial statement analysis l.jpg

Financial Statement Analysis

  • Identifies concerns that require more detailed business analysis


Internal analysis studies a firm s l.jpg

Internal Analysis Studies a Firm’s. . .

Mission

Human resources

Product life cycle

Marketing and selling

Pricing and differentiation

Supply chain

Finance

Investment priorities

Products and services


External analysis analyzes l.jpg

External Analysis Analyzes

  • Industry economics

  • Individual competitors

  • Customers

  • Governmental regulations

  • Q: What differentiates between external and internal analysis?


External analysis industry economics l.jpg

External Analysis—Industry Economics

This study determines the target firm's

  • Returns

    • High return attract more competition

    • Intense competition in turn lowers return

  • Profitability

  • Cash flow

    Based on the Porter’s Five Forces Framework


Porter s five forces framework forces driving industry competition l.jpg

Porter's Five Forces Framework: Forces Driving Industry Competition

Potential Entrants

Existing

Competitive

Rivalry

Buyers

Suppliers

Substitutes


External analysis individual competitors l.jpg

External Analysis—Individual Competitors

Goal:

  • To understand the existing rivalry on a macroeconomic level

  • Factors to increase rivalry

    • More competitors

    • Low industry growth

    • Limited product differentiation

    • High fixed costs

    • Excess industry capacity


External analysis potential entrants l.jpg

External Analysis—Potential Entrants

Goals:

  • To know numbers of potential competitors

  • How they will affect competitive rivalry

  • Barriers to entry:

    • Economies of scale

    • Product differentiations

    • High capital needs

    • Difficulty of obtaining certain resources

    • Access to distribution channels

    • Cost disadvantages

    • Specialized technology and patents


External analysis substitute products l.jpg

External Analysis—Substitute Products

Goals:

  • To understand how substitute products can remove profits

  • To consider the available substitute products

  • Example:

    • Coffee vs. Tea

    • Rice vs. Flour

    • Coke vs. Pepsi

    • …..


External analysis buyers l.jpg

External Analysis—Buyers

Goal:

  • To understand the customers' strong bargaining position

  • Factors to increase bargaining power

    • Homogeneous product

    • Many suppliers

    • Customers buy large quantity

    • Customers act in concert


External analysis suppliers l.jpg

External Analysis—Suppliers

Goal:

  • Understand that suppliers generally have more bargaining power to raise prices and lower quality if there are only a few of them and if there are not many substitutions for their products.

  • Example:

    • The Major League Baseball Players Association

    • Microsoft?


Individual competitor assessment l.jpg

Individual Competitor Assessment

Goal:

  • Understand specific key strategies of key competitors on a microeconomic level with an eye toward how each will affect the target company

  • Questions to ask when analyzing individual competitor

    • P. 48


Individual competitor assessment continued l.jpg

Individual Competitor Assessment Continued

Includes:

  • Strategies

  • Products

  • Marketing

  • Supply chain

  • Profitability


Customer analysis l.jpg

Customer Analysis

Goal:

  • To understand how the customers’ needs drive demand

    • Price vs. quality

    • Trends in customers’ needs

    • Understand both the intermediate channels and the ultimate customers

    • Demographic trends, purchasing habits, attitudes and usage information


Governmental and regulatory analysis l.jpg

Governmental and Regulatory Analysis

Goal:

  • To understand the governmental and regulatory environment of a firm

    • Regulated industry: utilities

    • Pollution standards

    • Licensing requirements

    • Food and drug safety rules


Internal analysis l.jpg

Mission

Internal Analysis

Products and services

Product life cycle

Pricing and differentiation

Marketing and selling strategies

Supply chain

Human resources

Investment priorities

Finance/accounting


Internal analysis mission l.jpg

Internal Analysis—Mission

What the firm hopes to accomplish

  • Understanding the company’s mission puts these business strategies and actions in perspective so that the analyst can better predict the firm’s future


Internal analysis products and services l.jpg

Internal Analysis—Products and Services

  • What do products and services do?

  • How does the customer use them?

  • What is the market scope? Defined according to

    • Geographic area

    • Certain technology

    • Customer type

  • What are the depth and breadth of the firms product?

    • Amazon.com vs. William Wrigley Jr.


Internal analysis product life cycle l.jpg

Internal Analysis—Product Life Cycle

Sales

Introduction Growth Maturity Decline

Phase

  • Costs vary with these stages

    • R&D, promotion

  • Firms or industries spend different amounts of time in each phase


Internal analysis pricing and differentiation l.jpg

Internal Analysis—Pricing and Differentiation

  • The more differentiated the product, the less competition focuses on price

  • Differentiation vs. Price Competition

    • The more differentiated the product the less competition focuses on prices

      • Wal-Mart’s vs. Nordstrom’s

      • Natural Foods vs. Supermarkets


Internal analysis marketing and selling strategies l.jpg

Internal Analysis—Marketing and Selling Strategies

Goal:

  • To understand the firm's strategy for bringing the product to the customer

    • Advertising: TV, radio, newspaper, magazines or internet?

    • Promotions: price discounts, free product, customer’s incentives


Internal analysis supply chain l.jpg

Internal Analysis—Supply Chain

Goal:

  • To understand how each part works in order to project future cash flow

  • A large percentage of costs occur in the supply chain


Internal analysis supply chain includes l.jpg

Internal Analysis—Supply Chain Includes

  • Elements: importance differs for different type of firms

    • Purchasing

    • Manufacturing

    • Research and development

    • Distribution


Internal analysis human resources l.jpg

Internal Analysis—Human Resources

Goal:

  • To understand the strengths and weaknesses on the people side

    • Leadership ability and style

    • Core competencies

      • The special skills and abilities that allow it to be successful


Internal analysis investment priorities l.jpg

Internal Analysis—Investment Priorities

Goal:

  • To know what makes a firm successful through understanding its investment priorities

  • Priority of strategies: what a firm will do if a competitor tires to interfere with its business

    • Advertising

    • Pricing

    • Capital investment

    • Legal maneuvers


Internal analysis finance accounting l.jpg

Internal Analysis—Finance/Accounting

Goal:

  • To understand how the firm's accounting methods, estimates, and judgments affect the financial statements

  • Cost structures

    • High margins vs. large volume


Summary l.jpg

Summary

We have learned:

  • Why business analysis is crucial to security valuation

  • How to prepare an external analysis of the firm


Summary continued l.jpg

Summary Continued

  • How to prepare an internal analysis of the firm

  • Where to get information for business analysis

    • Annual reports

    • Magazine

    • Newspapers

    • Company web site

    • Government information

    • Analyst reports

    • Internet search


  • Login