COMPANY ANALYSIS - COMPANY ANALYSIS Definition The process...

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COMPANY ANALYSIS Definition The process of defining what a company does well and what it doesn’t do well and where it ismost vulnerable to competitive forces.Goal is to understand the internal workings of the company and its relationship to its externalenvironment.This section groups various analysis components for discussion. “Firm Competitive Strategies”continues the Porter discussion of an industry’s competitive environment. The basic SWOT analysis, is intended to articulate a firm’s strengths, weaknesses, opportunities,and threats. These two analyses should provide a complete understanding of a firm’s overallstrategic approach. Given this background, we review the fundamental valuation models. In therest of this chapter, we discuss estimating intrinsic value for Walgreens using the two valuationapproaches: (1) the present value of cash flows, and (2) relative valuation ratio techniques.Following this, we discuss the significance of site visits to companies, how to prepare for aninterview with management, and suggestions on when an investor should consider selling anasset. This is followed by a discussion of unique considerations regarding evaluation ofinternational companies and their stocks. The final section of the chapter discusses the uniquefeatures of true growth companies and presents and demonstrates several models that can be usedto value growth companies.In describing competition within industries, we identified five competitive forces that couldaffect the competitive structure and profit potential of an industry. They are: (1) Current rivalry, (2) threat of new entrants, (3) potential substitutes, (4) bargaining power ofsuppliers, and (5) bargaining power of buyers.
After you have determined the competitive structure of an industry, you should attempt toidentify the specific competitive strategy employed by each firm and evaluate these strategies interms of the overall competitive structure of the industry. A company’s competitive strategy caneither be defensive or offensive.A defensive competitive strategy involves positioning the firm so that its capabilities provide thebest means to deflect the effect of the competitive forces in the industry. Examples may includeinvesting in fixed assets and technology to lower production costs or creating a strong brandimage with increased advertising expenditures. An offensive competitive strategy is one in which the firm attempts to use its strengths to affectthe competitive forces in the industry. For example, Microsoft dominated the personal computersoftware market by preempting, rivals and its early affiliation with IBM because it became thewriter of operating system software for a large portion of the PC market. Similarly, Wal-Martused its buying power to obtain price concessions from its suppliers. This cost advantage,coupled with a superior delivery system to its stores, allowed Wal-Mart to grow against largercompetitors until it became the leading U.S. retailer.

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Term
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Firm, Competitive Forces

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