CHAPTER 9

INTRODUCTION TO INDUSTRY AND COMPANY

ANALYSIS
Presenter
Venue
Date

USES OF INDUSTRY ANALYSIS

Understanding a
companys business and
business environment
Identifying active equity
investment opportunities

Portfolio performance
attribution

APPROACHES TO IDENTIFYING SIMILAR

COMPANIES
BusinessCycle
Sensitivities
Products
and/or
Services
Supplied

Statistical
Similarities

Industry
Classification

CYCLICAL AND NONCYCLICAL

COMPANIES

Cyclical
Company

Profits
strongly
correlated
with
economic
activity

Expensive,
nonessential
products

High
operating
leverage

LIMITATIONS OF INDUSTRY AND COMPANY

DESCRIPTORS

Defensive
Industries
Cyclical
Industries

Growth
Industries
Growth
Companies

COMMERCIAL INDUSTRY
CLASSIFICATION SYSTEMS
Global Industry
Classification Standard
(GICS)
Russell Global Sectors
(RGS)
Industry Classification
Benchmark (ICB)

REPRESENTATIVE INDUSTRY SECTORS

Basic Materials and Processing
Consumer Discretionary
Energy
Financial Services
Industrial/Producer Durables
Technology
Telecommunications
Utilities

GOVERNMENTAL INDUSTRY
CLASSIFICATION SYSTEMS
International Standard Industrial Classification
of All Economic Activities (ISIC)
Statistical Classification of Economic Activities
in the European Community (NACE)
Australian and New Zealand Standard
Industrial Classification (ANZSIC)
North American Industry Classification System
(NAICS)

CONSTRUCTING A PEER GROUP

EXHIBIT 9-2 FRAMEWORK FOR INDUSTRY

ANALYSIS

STRATEGIC ANALYSIS: PORTERS FIVE

FORCES FRAMEWORK
Threat
Threat of
of New
New Entrants
Entrants

Bargaining
Bargaining
Power
Power of
of
Suppliers
Suppliers

Intensity
Intensity
of
of Rivalry
Rivalry

Threat
Threat of
of Substitute
Substitute
Products
Products

First focus
for analysis

Bargaining
Bargaining
Power
Power of
of
Customers
Customers

EVALUATING THE THREAT OF NEW ENTRANTS

AND THE LEVEL OF COMPETITION

BARRIERS TO ENTRY

INDUSTRY CONCENTRATION
What percentage of
the market does
each of the largest
players have?

INDUSTRY CAPACITY

MARKET SHARE STABILITY

Source: Based on Figure 2.4 in Hill and

INDUSTRY LIFE CYCLE

Source: Based on Figure 2.4 in Hill and Jones (2008).

Source: Based on Figure 2.4 in Hill and Jones (2008).

LIMITATIONS OF INDUSTRY LIFE-CYCLE

ANALYSIS

PRICE COMPETITION

MACROECONOMIC INFLUENCES ON INDUSTRY

GROWTH, PROFITABILITY, AND RISK

OTHER INFLUENCES ON INDUSTRY GROWTH,

PROFITABILITY, AND RISK

INDUSTRY ANALYSIS FOR BRANDED

PHARMACEUTICALS

INDUSTRY ANALYSIS FOR OIL SERVICES

INDUSTRY ANALYSIS FOR

CONFECTIONS/CANDY

PORTER: COMPETITIVE STRATEGY

Scope
Narrow
Broad

Source of Competitive Advantage

Cost
Differentiation

COMPANY ANALYSIS

DECOMPOSITION OF ROE

SPREADSHEET MODELING

Optimistic

Expected

Pessimistic

SUMMARY
Uses of industry analysis
Industry classification systems
Establishing a peer group
Strategic analysis: Porters five forces
Industry and product life cycles
Demographic, governmental, social, and technological
influences
Company analysis
Cost and differentiation strategies
Spreadsheet modeling