quantitative measures

Question 1

How can I measure the attractiveness of a market?

Answer 1

market size, market growth rate, average profit margins

Question 2

How can I measure the competitiveness of a market?

Answer 2

number of top players, percentage of market share taken up by the top players (how fragmented a market is)

Question 3

How can I better understand consumers?

Answer 3

needs and preferences, purchasing behaviour, customers perception of ‘X’

Question 4

How can I measure the readiness of a company to enter a new market?

Answer 4

Look at production capabilities (produce at scale)
Look at expertise (produce outstanding products)
Look at the possibility of synergy

Question 5

What is the difference between entering a new market and acquiring another firm?

Answer 5

Acquiring another firm is about ‘can that firm profit me’, measures of potential profitability should regard specific company firm wishes to acquire

is not ‘average profit margin’ because you aren’t in the business; it’s ‘return on investment’ because you’ve acquired an asset

important to consider strategic alternatives: other targets, develop internal capabilities, partnership and joint venture

Question 6

How should one think about acquiring firms that share no synergies (PE)?

Answer 6

The PE should consider whether they have the capabilities and expertise to run the firm, whether they can grow the business and increase profit margins

Question 7

How to calculate market demand / market size?

Answer 7

‘Market Demand’ generally refers to the total value of a specific market that the firm wishes to enter annually.

number of people who engage in the service x the number of times which each consumer uses the service IN A YEAR x the average price

However, there estimates that additionally account for subsegments OR better yet, market sizes that can realistically be obtained by the company-in-question.

Question 8

How to calculate the obtainable market size for a firm?

Answer 8

Take their market share times the total market demand

Question 9

How does risk affect value?

Answer 9

Especially if a value is in the future, or it’s not accrued to the company yet as profit, means it is uncertain.

If it is uncertain, then we need to weigh the uncertainty into value. This requires us to multiply risk factor (0<x<1) by the estimated profits.