Business Analysis Project

Transcription

1 Business Analysis Project Session 3 Analysis of Competitive Market and Financial Performance Andre Samuel

2 This Session ETOP Analysis Quantitative analysis of Five Forces Evaluating Strategies Organizational Performance

3 ETOP Analysis ETOP analysis enables strategists to anticipate, consider, and design the most appropriate strategies It provides a reliable guide for scanning macroenvironmental factors, and enhances the strategic ability to understand and act upon macroenvironmental intelligence.

4 Example ETOP Analysis

5 Competitive Analysis Porter s Five Forces Make your Five Forces analysis Quantitative

6 First Force Competitive Rivalry Who are the Key Competitors? What is the overall Industry/Sector performance? What are their market share? Who is winning, who is losing?

7 UK Supermarket Industry The latest grocery share figures from Kantar Worldpanel, published for the 12 weeks ending 22 May 2016, shows average household spend for the big four has dropped by 2.9%. From 2012 to 2015, the German discount chains Aldi boosted their market share. Aldi went to 5%, from 2.6%; while Lidl's share rose to 3.5% from 2.5%. They have taken nearly 9% of the market in just two years.

8 UK New Car Industry Marketline (2015) Market Analysis: The UK new cars market had total revenues of $93.2bn in 2014, representing a compound annual growth rate (CAGR) of 9.8% between 2010 and The performance of the market is forecast to decelerate, with an anticipated CAGR of 5.5% for the five year period , which is expected to drive the market to a value of $121.8bn by the end of 2019

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10 Buyer Power UK New Car Industry Marketline (2015) Overall, buyer power is assessed as moderate 3.3

11 Supplier Power UK New Car Industry Marketline (2015) Overall, supplier power is moderate 3

12 New Entrants UK New Car Industry Marketline (2015) New entrant power is assessed as moderate 2.5

13 Threat of Substitute UK New Car Industry Marketline (2015) Overall, the threat from substitutes to personal cars is strong 3.7

14 Rivalry UK New Car Industry Marketline (2015) overall rivalry in this market is strong 3.6

15 Summary of Five Forces UK New Car Industry Marketline (2015) Each of the Force s score is plotted on the Radar chart

16 Predicting the forces 5 years Forward

17 Key Issues with Using Traditional Five Forces Johnson and Scholes et al (2014, pg ) Defining the right industry Converging Industries Complementary Organizations as a sixth force

18 Critical Comment on the Five Forces Lynch (2015, pg.92) The analytical framework is static It assumes the organization s own interest comes first It assumes buyers have no greater importance than any other aspect of the micro environment Its starting point is that the environment poses a threat. BUT it may be useful to CO OPERATE It ignores the HR aspect of strategy Prescriptive rather than emergent

19 Modifying the Five Forces using Four Link Model Lynch (2015, pg. 94) We will need to add Cooperation and Complementors

20 Five Forces and Collaboration Johnson and Scholes (2014)

21 Competition and Collaboration Johnson and Scholes (2014)

22 Other Forces of Competition? Johnson and Scholes (2014) P E S T L E

23 Evaluating Strategies Assessing Performance

24 Organizational Performance Economic Performance Product Markets sales growth, market share Profitability profit margin, ROCE Financial Markets share price, dividend yield Effectiveness Balance scorecard Customer Perspective Internal business perspective Innovation and learning perspective Financial perspective Triple Bottom Line Economic measures Social Measures Environmental Measures

25 Performance Comparisons relative to what? There are three main comparisons to consider: 1. Organizational Targets management s own targets expressed in the company s vision, mission, objectives 2. Trends over time whether performance is improving or declining over time. Improvement suggest good strategy, decline suggest poor strategy 3. Comparator Organizations benchmarking against competitors, or other companies doing equivalent business. Compare using financial measures, share price among others measures. (discussed above)

26 Ellis, J and Williams D (1993), Competitive Strategy and Financial Analysis, Pitman, page 235 Operating ratios Financial ratios Ratio How calculated Interpretation Overall Performance Gross profit Turnover minus direct costs of making product or providing a service Operating Profit Gross profit minus Shows whether operation is financially operating costs sustainable Return on Capital Operating profit / Average Provides an overall measure of corporate Employed % Net Profit Margin % Asset Turnover ( X ) capital employed x 100 Operating profit / Turnover x 100 Turnover / Average capital employed performance Describes the % profit for each turnover after direct & indirect expenses have been deducted Shows how many times sales generated from the capital employed Working Capital Stock Turnover ( X ) Cost of sales / Stocks Indicates how many times stocks are being turned over in a year Debtor Turnover ( X ) Turnover / Trade debtors Number of times trade debtors are rotated in a year Working Capital to Turnover ratio % Debt Ratios Gearing Ratio % (Stocks + trade debtors trade creditors) / Turnover x 100 Total borrowings / Capital employed x 100 Debt equity ratio % Total borrowings / Shareholders funds x 100 Interest Cover (X) Liquidity Ratios Current Ratio (X) Profit on ordinary activities before interest / Interest paid Current assets / Current liabilities Acid test (X) Current assets less stocks / Current liabilities Provides a measure of the overall working capital needs of the company. High ratios suggest working capital needs are greater. Measures extent of borrowings in relation to capital employed. Relates total debt to shareholders funds to indicate how company is financed. How many times profits cover interest payments. A measure of the ability to service debt. How many times current assets cover current liabilities Current ratio less stocks. A more stringent test of liquidity

27 Financial Outcomes

28 Shareholder Value Analysis Johnson and Scholes (2014, pg. 386)

29 Using Yahoo Finance For any listed company you can: View financial statements Key Statistics: Valuation Measures Financial Highlights Trading Information