SD3-Business Analysis

SD3-Business Analysis - CHAPTER 3 BUSINESS ANALYSIS...

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CHAPTER 3 BUSINESS ANALYSIS LEARNING OBJECTIVES 1. Why business analysis is crucial to security valuation. 2. How to prepare an external analysis of the firm. 3. How to prepare an internal analysis of the firm. 4. Where to get information for business analysis. TRUE/FALSE QUESTIONS 1. A careful, detailed financial statement analysis will be worthless without a strong understanding of what will drive the business in the future. (easy, L.O. 1, Introduction, true) 2. Financial statement analysis will highlight issues we need to study further in the business analysis stage. (moderate, L.O. 1, Introduction, true) 3. The nature of the particular target business will determine which elements of the internal analysis are most important to us. (moderate, L.O. 2, Section 1, false) 4. The more intense the competition, the lower the expected industry return, and the lower the value of a given firm in the industry. (moderate, L.O. 2, Section 1, true) 5. Research indicates that industry growth rates do not affect the intensity of competition. (easy, L.O. 2, Section 1, false) 6. Substitute products can remove profits from an industry. (easy, L.O. 2, Section 1, true) 7. Understanding each competitor’s strengths will help us project the future for the target company. (easy, L.O. 2, Section 1, true) 8. The choice of distributor, broker, or internal sales force is similar from industry to industry. (moderate, L.O. 2, Section 1, false) 9. The final step in external analysis is to understand the customer or buyer group as an economic factor affecting industry profitability. (moderate, L.O. 2, Section 1, false) 10. Substitute products are a factor that prevents new firms from venturing into the market. (difficult, L.O. 2, Section 1, false) 11. One aspect of positioning is to identify the target customer group. (easy, L.O. 3, Section 2, true) 12. Differentiation includes the combined efforts of purchasing, manufacturing, research and development, and distribution. (moderate, L.O.3, Section 2, false) 13. A key aspect of human resources is understanding the strengths and weaknesses of employee skills and 15
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experience. (moderate, L.O. 3, Section 2, true) 14. Core competencies are the special skills and abilities that allow a firm to be successful. (easy, L.O. 3, Section 2, true) 15. One way for an analyst to identify a firm’s core competencies is to analyze its annual report. (moderate, L.O. 4, Section 2, true) MULTIPLE CHOICE QUESTIONS 16. Which of the following items is not considered a part of the internal analysis of a business? a. investment priorities b. customer analysis c. supply chain d. product life cycle (moderate, L.O. 1, Introduction, b) 17. The goal of business analysis is to learn everything about a business that somehow might impact the future cash flow of the firm. The result of a valuation analysis depends entirely on: a. the assumptions used in the valuation model b. the assumptions made about the business itself c.
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SD3-Business Analysis - CHAPTER 3 BUSINESS ANALYSIS...

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