macro and industry analysis Flashcards
What are the main components of business analysis?
- Macro and Industry analysis
- Strategy and executive analysis
- Financial analysis
- Accounting analysis
- Prospective analysis
What does industry analysis focus on?
- Sensitivity to macro factors
- Life cycle
- Key facts and stats
- Competitive analysis
What macro factors are considered in macro analysis?
- Economic growth
- Interest rate
- Oil prices
- Foreign exchange rate
- Hedging
What is the top-down approach in understanding a business?
- General macroeconomic conditions
- Industry in which the business operates
- Detailed analysis of the operations and strategies of the business
- Detailed analysis of the key executives
Which items in a 10-K report are crucial for business-related information?
- Item 1: Business
- Item 1A: Risk Factors
- Item 7: MD&A
How is the value of an investment determined?
Value = f (profitability, growth, risk)
What effect does a lower interest rate have on profitability?
- Lower interest expense → higher profitability
- Lower cost of financing → higher growth
- Lower cost of capital
True or False: An interest rate cut always leads to market gains.
False because it contains bad informations about the future so markets tend to decline after a rate cut
What are the implications of high oil prices on valuation determinants?
- High transportation and energy costs → lower profitability
- High financial burden on consumers → lower growth
What happens when the relative value of USD rises?
- Cost of foreign inputs decreases
- Revenue from foreign sales decreases
What are the two types of hedging mentioned?
- Contractual hedging through financial engineering
- Natural hedging through business structure
What is a realistic goal for macroeconomic analysis?
To understand the general consensus about major macroeconomic factors
Match the following industries with their performance metrics: Grocery, Pharmaceutical, Utility, Bank.
- Grocery (1) - Profit Margin: 3.50%, Asset Turnover: 2.900, ROA: 10.15%, Long-Term Debt/Total Assets: 29.80%
- Pharmaceutical (2) - Profit Margin: 12.10%, Asset Turnover: 0.678, ROA: 8.20%, Long-Term Debt/Total Assets: 25.30%
- Utility (3) - Profit Margin: 10.50%, Asset Turnover: 0.495, ROA: 5.20%, Long-Term Debt/Total Assets: 65.60%
- Bank (4) - Profit Margin: 13.00%, Asset Turnover: 0.090, ROA: 1.20%, Long-Term Debt/Total Assets: 8.70%
What are the four objectives of industry analysis?
- Sensitivity of industry to key macroeconomic factors
- Life cycle of the industry
- Key performance metrics for evaluating operations
- Competitive structure of the industry
What is a ‘sunset’ industry?
An industry that is declining or becoming obsolete
What is the significance of key industry ratios and statistics?
They capture the financial health of the industry and firms within the industry
What are Porter’s Five Forces in the context of the Electric Vehicle Industry?
- Rivalry among existing firms
- Threat of new entrants
- Availability of substitute products
- Bargaining power with suppliers
- Bargaining power with customers
Key Takeaway: Firms are affected by macro factors such as _______.
[key learning term: economic growth, interest rate, oil prices]
