Hoa Của Trời

Topics: Strategic management, Management, Economics Pages: 10 (1282 words) Published: February 5, 2013

Financial Statements Analysis
Week 3: Industry Analysis, Business Strategy Analysis, and Economic Analysis Lecturer: Khoa Duong, Master of Finance & Banking, Monash University, Australia Lecture notes available at: http://sdrv.ms/T5Ucm3 Khoa Duong, Master of Banking & Finance 1

Steps in the Valuation Process
We will consider the first stage of business valuation: 1. Strategy analysis 2. Corporate governance analysis 3. Accounting analysis 4. Financial analysis 5. Prospective analysis 2

Strategy Analysis

A firm’s profit potential is determined by:

◦ (1) Strategic choices of management:
 Industry choice  Competitive positioning/strategy  Corporate strategy

◦ (2) Economic environment firm operates within



Strategy Analysis

Strategy analysis comprises:

◦ Industry analysis
 Porter’s ‘five forces’ framework

◦ Business strategy analysis
 Competitive strategy  Corporate strategy

◦ Economic analysis
 Influence of economic climate on the above

Strategy Analysis


Industry Analysis: Its Importance

A firm’s profit potential is heavily influenced by the industry in which it competes: ◦ Half-year profit announcements in materials industry (BHP; Boral) vs. retail industry (NoniB; Reject Shop) Understanding the environment and competitive forces within an industry helps evaluate the quality of management’s strategic choices Porter’s ‘5 forces’ framework evaluates the competitive forces within an industry 6



Porter’s Five Force Framework

Industry Analysis: Porter’s 5 Forces
Degree of Actual and Potential Competition 1.Rivalry among existing firms 2.Threat of new entrants 3.Threat of substitute products/services Bargaining Power in Input and Output Markets 4. Bargaining power of buyers 5. Bargaining power of suppliers


Industry Structure and Profitability




Competitive Force 1: Rivalry Among Existing Firms
Varying degrees of competition among firms: Aggressive Competition on Price ◦ Push prices towards (or below) the marginal cost of production  Airline and hotel industries ◦ Co-ordinated pricing  Retail industry (petrol stations) ◦ Non-price dimensions of products/services important  Innovation/brand name 10

Non-aggressive Competition on Price

Competitive Force 1: Rivalry Among Existing Firms

Determinants of the intensity of competition among existing firms: ◦ Industry growth rate ◦ Concentration and balance of competitors ◦ Degree of differentiation in products/services and switching costs ◦ Scale/learning economies and ratio of fixed to variable costs ◦ Excess capacity and exit barriers 11

Competitive Force 2: Threat of New Entrants
The ease with which a new firm can enter an industry will affect the profitability of other firms within the industry  Factors affecting the barriers to entry are: ◦ Economies of scale  Extent of investment required by new entrants (e.g. ‘private’ university) ◦ First mover advantage  Exclusive arrangements/switching costs (e.g. Microsoft) ◦ Access to distribution channels  Strength of existing relationship (e.g., shelf-space for ‘new’ soft drink) ◦ Legal or political barriers  Patents/copyrights;  Licensing regulations (e.g. taxi services; television/radio) 




Competitive Force 3: Threat of Substitute Products

Substitutes are those of the same function (not form) ◦ Public transport vs. taxis to travel over short distances The threat of substitutes depends on customers’ willingness to accept substitutes: ◦ the relative price and performance of competing products/services; ◦ technology (e.g., Article: “Book chains’ collapse brings retail nightmare closer”) ◦ community awareness (e.g. public transport vs. taxis to travel over short distances

• The threat of substitutes affects the industry’s bargaining power with suppliers and customers, and ultimately profitability 13...
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • van hoa anh my Essay
  • Essay about Notes on HOA
  • CUA Mechanics Essay
  • Ib Hoa Essay
  • Bien Hoa JSC Essay
  • Mr Hoa Essay
  • Essay on Troi Danley
  • HOA 105 Syllabus 2014 Essay

Become a StudyMode Member

Sign Up - It's Free