Along with the technological advancements in recent decades, it has become significantly easier for investors to make international investments at low costs. Similarly, international issuers are now more capable of raising money from foreign investors. This increase in global investment…

Determining which industries will earn economic profits (return on invested capital in excess of the cost of capital) is typically dependent on understanding the competitive environment within the industry. Thus, strategic analysis is the competitive environment analysis, emphasizing the implications…

Barriers to Entry High barriers to entry generally entail more pricing power and less price competition, while low barriers to entry usually mean less pricing power and more price competition. Restaurants typically have low barriers to entry, and thus the…

An industry’s life-cycle position often has a large impact on its competitive dynamics, making this position an important component of the strategic analysis of an industry. Life-Cycle Stages Embryonic: an industry just beginning to develop, characterized by slow growth, high…

A valuable comparison may include the following elements: major companies, barriers to entry, level of concentration, impact of industry capacity, industry stability, life-cycle, price competition, demographic influences, government & regulatory influences, social influences, technological influences, and business cycle sensitivity.

External factors affecting an industry’s growth include macroeconomic, technological, demographic, governmental, and social influences. Macroeconomic Influences Cyclical or structural trends may have significant effects on the demand for an industry’s products or services. An industry’s sales and profitability may be…

A thorough company analysis will involve an examination of the company’s financial position, products/services, and competitive strategy (a company’s plans for responding to external threats and opportunities). There are two primary competitive strategies: a low-cost strategy and a product/service differentiation…

When a security’s current market price is approximately equal to its value estimate, the security is considered to be fairly valued. Conversely, when the market price exceeds the value estimate, the security is overvalued, and so the security is undervalued…

There are three major categories of equity valuation models: present value models, multiplier models, and asset-based valuation models. Present Value Models/Discounted Cash Flow Models These models estimate intrinsic value based on expected future benefits, usually based on expected dividends (dividend…

Present value models are based on a fundamental tenet of economics stating that individuals defer consumption to reap future benefits. Therefore, the value of an investment today should be worth the present value of expected future benefits, defined as dividends…