Purpose: How profitable is the industry

Factors: demand and competition

Environment: Macro Insights (PESTLE) and Industry Insights

Determine the scope of the industry. Cover sub-segments?

Understand the general aspects (size, composition of the market)
How do they make money? Where do they sit in the industry value chain
o Eg. Oil and gas:
o Upstream: extracting Downstream: refining and marketing
o Insurance companies: reinvestment risks and maturity mismatch risk
Suppliers bargaining power: unique vs standardized components, number of
suppliers, cost of switching suppliers
Structural forces: Porters 5 forces
Non-structural forces are ever changing and differ from industry to industry.
Impact five forces and eventually alter an industrys profitability.
o Government
o Technology

COMPANY PIECE:

Company business model: defining its operations, eg cultivation, processing,

distribution
Competitive advantage and comparative advantage.

Sources of competitive/comparative advantage:

1. Position in the value chain:
a. Where is it in the value chain? High bargaining power
2.
a. RTM/RTC: route-to-market and route-to-consumer. How does the
company move its product or service to its market?
3.
a. Logistics: Supply chain management: How well does the product move
from the upstream producer down to the company? Vertical integration
Distribution: Own logistics division or outsource to logistics service
provider. Efficiency depends not only on the quality of its logistics
assets but also the countrys existing infrastructure.
4. Alliances/parent company: Part of a larger group of companies- other
subsidiaries can provide synergy.
a. Can a merger/ acquisition provide an advantage? Or enhance an
existing one?
b. Alliances and partnerships between companies
5. Reputation: Success builds on success
6. Management Change in management figures. Track record?

Is the company well connected and embedded in the countrys political machine?
Contract, intellectual property ownership. Related development of legal/judicial
system
SWOT Analysis

Each strength presents the business with its own kind of opportunities
If a company is able to continually tap onto new demand and growing
markets then perhaps the firm has a competitive advantage What
opportunities is this indicative of?
If a company is suffering then perhaps the opportunity is not

Analysis of risks

How likely do you believe the trend is going to continue?

If it does not happen there will be risk. There are threats to the companys
development

FINANCIALS:

Basics: Balance sheet. Income statement. Cash flow statement

Financial ratios: Current ratio, Quick ratio and Cash ratio.
Leverage: total debt ratio. Debt-to-equity ratio and long-term debt ratio
Coverage: times interest earned and cash coverage ratio
Turnover and efficiency: AP turnoever, AR turnover, Inventory turnover, total
asset turnover and fixed assets turnover
Profitability: gross profit margin, net profit margin, return on assets and return
on equity
Market value: P/E ratio, market-to-book ratio

Research databases:

EIU
Emerging markets information service
BMI Research
S&P Capital IQ
OneSource
JPMorgan equity research reports
Eikon terminal: library level 3 investment studio
Bloomberg terminal
World Bank, International Monetary Fund, US Department of Agriculture, US
geological survey