Threat of entry high investment costs such as

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Threat of entry High investment costs, such as warehousing and logistics, are a barrier to entry in McLane's business; this means the threat of entry is relatively low. Our analysis reveals that McLane is a high-volume, low-margin company. Its ability to control costs is crucial to its financial performance, including its ability to fully utilize its assets. Evalu- ation of McLane's financial statements should focus on that dimension. Analyzing the Broader Business Environment Quality analysis depends on an effective business analysis. Before we analyze a single accounting number, we must ask questions about a company's business environment such as the following: Life cycle At what stage in its life is this company? Is it a startup, experiencing growing pains? Is it strong and mature, reaping the benefits of competitive advantages? Is it nearing the end of its life, trying to milk what it can from stagnant product lines? Outputs What products does it sell? Are its products new, established, or dated? Do its products have substitutes? How complicated are its products to produce? Buyers Who are its buyers? Are buyers in good financial condition? Do buyers have sub- stantial purchasing power? Can the seller dictate sales terms to buyers?
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Module 1 I Framework for Analysis and Valuation 1-18 Inputs Who are its suppliers? Are there many supply sources? Does the company depend on a few supply sources with potential for high input costs? Competition In what kind of markets does it operate? Are markets open? Is the market competitive? Does the company have competitive advantages? Can it protect itself from new entrants? At what cost? How must it compete to survive? Financing Must it seek financing from public markets? Is it going public? Is it seeking to use its stock to acquire another company? Is it in danger of defaulting on debt covenants? Are there incentives to tell an overly optimistic story to attract lower cost financing or to avoid default on debt? Labor Who are its managers? What are their backgrounds? Can they be trusted? Are they competent? What is the state of employee relations? Is labor unionized? Governance How effective is its corporate governance? Does it have a strong and inde- pendent board of directors? Does a strong audit committee of the board exist, and is it populated with outsiders? Does management have a large portion of its wealth tied to the company's stock? Risk Is it subject to lawsuits from competitors or shareholders? Is it under investigation by regulators? Has it changed auditors? If so, why? Are its auditors independent? Does it face environmental and/or political risks? SWOT AnalysiS of the Business Environment A an alternative to Porter-based competitive analysis, some prefer a SWOT analysis of a com- pany. SWOT is an acronym that stands for Strength, Weakness, Opportunities and Threats. This analysis can be applied to almost any organization. This approach is universally applicable and easy to apply, and can be graphically portrayed as follows: External Factors SWOT Analysis Positive Factors WOT analysis has two parts. Looking internally, we review a company's Strengths and Weak-
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