SWOT Analysis

Written by Chris Mallon


Continued from page 1

Opportunities

We shift our focus to external factors when we look at opportunities. Here we try to identify areas of business we thinkrepparttar company is looking to enter, or should be looking to enter. We also look for opportunities to gain market share from competitors, or growrepparttar 112596 company’s market to new customers.

But there are more than just external opportunities. There are opportunities within a company that should be considered. Canrepparttar 112597 company combine product lines to increase sales? Mayberepparttar 112598 company has duplicate costs that can be streamlined. Companies can always find ways to do things better.

Some opportunities to look for: •New markets for products •Financial or legal trouble for competitors •New technologiesrepparttar 112599 company could adopt •Changes in regulatory / tax burdens •Strategic investments •Internal efficiencies

Threats

Finally, we need to consider threats torepparttar 112600 company. Again, threats can be internal as well as external. In fact, I’ve found that internal threats usually come first, which opensrepparttar 112601 door to external threats. Therefore, it’s important to do a good threat analysis.

Internal threats aren’t usually classified as such, which I think is a mistake. Any internal problem is a threat torepparttar 112602 company’s well-being and should be evaluated alongsiderepparttar 112603 external threats. For example, a company that relies on developing innovative products, such as Microsoft or Intel, facesrepparttar 112604 threat of losing engineering talent every day. This is an internal threat that could easily paverepparttar 112605 way for external threats.

Some possible threats are: •Internal obstaclesrepparttar 112606 company is facing. •Financial constraints onrepparttar 112607 company. •Cash flow problems. •The relative position ofrepparttar 112608 company’s largest competitors. •Technological advances inrepparttar 112609 industry (ifrepparttar 112610 company isn’t keeping pace). •New technologies that threaten to displacerepparttar 112611 company’s products. SWOT analysis is a brainstorming activity, and you should learn from it. Focus onrepparttar 112612 weaknesses andrepparttar 112613 threats when doing SWOT, because that’s what will turn around and bite you after you make your investment. I’m not saying you should look only forrepparttar 112614 negatives, and ignorerepparttar 112615 company’s potential. But you should analyzerepparttar 112616 risks with as much, or more, scrutiny thenrepparttar 112617 opportunities. Opportunities don’t always show up, but somehow risks always do.

Chris Mallon is the editor and publisher of the Undervalued Weekly, a financial analysis newsletter. Chris holds a Master of Science in Finance and is the leading analyst for the Dynamic Investors partnership. He is available at chrismallon@dynamicinvestors.net or the through the website at www.dynamicinvestors.net/index8.html.


Porter's Five Forces Analysis

Written by Chris Mallon


Continued from page 1
Buyer Power There are two types of buyer power. The first is related torepparttar customer’s price sensitivity. If each brand of a product is similar to allrepparttar 112595 others, thenrepparttar 112596 buyer will baserepparttar 112597 purchase decision mainly on price. This will increaserepparttar 112598 competitive rivalry, resulting in lower prices, and lower profitability. The other type of buyer power relates to negotiating power. Larger buyers tend to have more leverage withrepparttar 112599 firm, and can negotiate lower prices. When there are many small buyers of a product, all other things remaining equal,repparttar 112600 company supplyingrepparttar 112601 product will have higher prices and higher margins. Conversely, if a company sells to a few large buyers, those buyers will have significant leverage to negotiate better pricing. Some factors affecting buyer power are: • Size of buyer – larger buyers will have more power over suppliers. • Number of buyers – when there are a small number of buyers, they will tend to have more power over suppliers. The Department of Defense is an example of a single buyer with a lot of power over suppliers. • Purchase quantity – When a customer purchases a large quantity of a suppliers output, it will exercise more power overrepparttar 112602 supplier. Supplier Power Buyer power looks atrepparttar 112603 relative power a company’s customers has over it. When multiple suppliers are producing a commoditized product,repparttar 112604 company will make its purchase decision based mainly on price, which tends to lower costs. Onrepparttar 112605 other hand, if a single supplier is producing somethingrepparttar 112606 company has to have,repparttar 112607 company will have little leverage to negotiate a better price. Size plays a factor here as well. Ifrepparttar 112608 company is much larger than its suppliers, and purchases in large quantities, thenrepparttar 112609 supplier will have very little power to negotiate. Using Wal-Mart as an example, we find that suppliers have no power because Wal-Mart purchases in such large quantities. A few factors that determine supplier power include: • Supplier concentration – The fewerrepparttar 112610 number of suppliers for a given product,repparttar 112611 more power they will have overrepparttar 112612 company. • Switching costs – suppliers become more powerful asrepparttar 112613 cost to change to another supplier increases. • Uniqueness of product – suppliers that produce products specifically for a company will have more power than commodity suppliers. It’s important to analyze these five forces and their affect on companies we want to invest in. The Porter Five Forces Analysis will give you a good explanation forrepparttar 112614 profitability of an industry, andrepparttar 112615 firms within it. If you want to know why a company is able, or unable, to make a decent profit, this isrepparttar 112616 first analysis you should do.

Chris Mallon is the editor and publisher of the Undervalued Weekly, a financial analysis newsletter. Chris holds a Master of Science in Finance and is the leading analyst for the Dynamic Investors partnership. He is available at chrismallon@dynamicinvestors.net or the through the website at www.dynamicinvestors.net/index5.html.


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