CFA 49: Introduction to Industry and Company Analysis Flashcards
industry
Approaches to Identifying Similar Companies
A group of companies offering similar products and/or services.
sector
Approaches to Identifying Similar Companies
A group of related industries. For example: The health care secotr, it consists of a number of related industries, including the pharmaceutical, biotechnology, medical device, medical supply, hospital, and managed care industries.
principal business activity
Approaches to Identifying Similar Companies
The source from which the company derives a majority of its revenues and/or earnings.
cyclical [company]
Approaches to Identifying Similar Companies
One whose profits are strongly correlated with the strength of the overall economy.
non-cyclical [company]
Approaches to Identifying Similar Companies
A company whose performance is largely independent of the business cycle.
peer group
Industry Classification Systems
A group of companies engaged in similar business activities whose conomics and valuation are influenced by closely related factors.
strategic groups
Describing and Analyzing an Industry
Groups sharing distinct business models or catering to specific market segments in an industry. Analysts often examine strategic groups almost as separate industries. Criteria for selecting a strategic group might include the complexity of the product or service, its mode of delivery, and “barries to entry”. For example, charter airlines form a stategic group among “airlines” that is quite distinct from scheduled airlines; full-service hotels form a strategic group that is separate from limited-service or budget hotels; and companies that sell proprietary drugs would be in a separate group from companies that sell generic drugs.
life-cycle stage
Describing and Analyzing an Industry
The industry is in en the embryonic, growth, shake-out, mature, or declining stage.
economic profits
Describing and Analyzing an Industry
Acheiving returns on investment above the opportunity cost of funds. This results in the creation of value, and sould increase the wealth of the investors.
strategic analyis
Describing and Analyzing an Industry
Analysis of the competitive environment with an emphasis on the implications of the environment for corporate strategy.
threat of substitute products
Describing and Analyzing an Industry
Demand is negatively affected if customers choose other ways of satisfying their needs. For example, low-priced brands may be close substitues for premium brands.
bargaining power of customers
Describing and Analyzing an Industry
Affects the intensity of competition by exertinginfluence on suppliers regarding prices (and possibly other factors such as product quality).
bargaining power of suppliers
Describing and Analyzing an Industry
May be able to raise prices or restrict the supply of key inputs to a company. For example unions, or scarce parts.
threat of new entrants
Describing and Analyzing an Industry
Depends on barriers to entry. Industries that are easy to enter will generally be more competitive than industries with high barriers to entry.
intensity of rivalry
Describing and Analyzing an Industry
Among incumbent companies. Industries that are fragmented among many small competitors, have high fixed costs, provide undifferentiated products, or have high exit barriers usually experience more intense rivalry than industries without these characteristics.
