Question

1.) Describe how to perform an industry analysis.

2.) Describe how to perform a subject company analysis.

3.) Describe how to perform a financial analysis.

4.) List and briefly describe the key financial statement adjustments that should be considered during the analysis phase.

5.) Discuss the role statistics play in business valuations

Answer 1

1. INDUSTRY ANALYSIS : industry analysis is a market assessment tool used by businesses and analysis to understand the competitive dynamics of an industry It helps them get a sense of what is happening in an industry demand and supply statistics degree of competition an industry state of competition of the industry with other emerging industries. There are three commonly used and important methods of performing industry analysis. a. Competitive forces model( Porter 5 forces Competitive pressures associated with the market maneuvering and jockeying for buyer patronage that goes among rival sellers in the industry Competitive pressures associated with the threat of new entrants in to the market Competitive pressures coming from the attempts of companies in other industries to win buyers over their own substitute products Competitive pressures stemming from supplier bargaining power and supplier seller collaboration Competitive pressures stemming from buyer bargaining power and seller buyer collaboration. b. PEST analysis Broad factors analysis also commonly called the pest analysis stands for political social and technological. Pest analysis is useful framework for analyzing external environment a. Political pressure groups influence and limit organizations. Apart from internal politics special interest groups put pressure on organization for consumer rights or other social issues b. Economic environment refers to the nature and direction of the economy in which a company competes or may compete. The economic environment includes general economic situation in the region and the nation, conditions in resource markets which influence the supply of inputs to the enterprise their cost, quality availability and reliability is supplies. C. Technological can act as both opportunity and threat to a business. It act as a opportunity as business can take advantage of adopting technological innovations to their strategic advantage. Socio cultural environment consists of factors related to human relationships and the impact of social attitudes and cultural values which has bearing on business of the organization. The beliefs, values and norms of a society determine how individuals and organizations should be interrelated. C. SWOT analysis : The comparison of strengths, weakness opportunities and threats is normally referred to as a SWOT analysis. Strength is an inherent capability of the organization which it can use to gain strategic advantage over its competitors Weakness is an inherent limitation or constraint of the organization which creates strategic disadvantage over it Opportunity is a favorable condition in the organizations environment which enables it to strengthen its position Threat is a unfavorable condition in the organization which causes risk for or damage to the organization position. COMAPANY ANALYSIS Company analysis is a process used to evaluate the value of a company using the metrics of other business of similar size in the same industry.It operate under the assumption that similar companies will have similar valuation multiples such as EBITDA .Analysis compile a list of available statistics for the companies being reviewed and calculate the valuation multiples in order to compare them. The most common measures used in a company analysis are enterprise value to sales,price to earnings, price to book and rice to sales. If the company's valuation is higher than the peer average the company is overvalued. FINANCIAL ANALYSIS: This requires an understanding of three key areas such as the structure of the financial statements, the economic characteristics of the industry in which the firm operates. The strategies the firm pursues to differentiate itself from it's competitors. The steps to develop an effective financial statement analysis are as follows - Identify the industry economic characteristics Identify company strategies Assess the quality of the firms financial statements Analyze current profitability and risk Prepare forecasted financial statements Value of the firm 4. FINANCIAL STATEMENT ADJUSTMENTS: There are three main ways to analyze financial statements Horizontal analysis provides a her to year comparison of a company's performance in different periods Vertical analysis provides a way to compare different companies Ratio analysis can be used to provide information about a company's performance. It is used most effectively to measure company against other companies in the same industry and to denote trends with the company 5. ROLE STATISTICS PLAYED IN THE BUSINESS VALUATION: A business valuation provides the business owner with multiple facts and figures regarding the actual worth or value of the company in terms of market competition assets values and income values. The main statistics played in the business valuation are as follows It is significantly important to obtain an accurate business valuation assessment. Estimates are not acceptable as it's is a generalization Understanding of company resale value Obtaining a true company value Better during merger or acquisitions Access to more investors