The document provides frameworks for analyzing companies and industries, including the Five C's for examining a company, SWOT analysis, Porter's Five Forces, and issue trees. It discusses considering trends beyond the industry level in macroeconomics, politics, consumer trends, and technology. Profitability is analyzed using equations for expected profit that include price, volume, revenues, costs, and cost of capital. An example issue tree is provided to disaggregate the problem of declining profits for a rug retailer.
10. Porter’s Five Forces analyzes the structure of an industry POTENTIAL ENTRANTS SUBSTITUTES Threat of substitute products Threat of new entrants INDUSTRY COMPETITORS Rivalry Among Existing Firms Bargaining power of suppliers Bargaining power of buyers BUYERS SUPPLIERS Regulatory impact of government Pressure of NGO’s GOVERNMENT NGO’S
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12. Politics: Who controls Congress? What’s the U.S. budget situation? What legislation is relevant to [company]? How are political conditions in potential foreign markets?
13. Consumer trends: What’s the unemployment rate? Which sectors have gained from the economic downturn?Is consumer demand in [sector] going up or down?
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15. An issue tree is an effective issue disaggregation tool Question of Fact Sub-Issue Question of Fact Issue Question of Fact Sub-Issue Question of Fact Central Question Question of Fact Sub-Issue Question of Fact Issue Question of Fact Sub-Issue Question of Fact Pick a sensible framework or pattern to apply; group the issues into buckets using framework Branches should be mutually exclusive, collectively exhaustive (MECE) Client’s critical issues are at higher levels of the tree Issues at lowest level should be able to be answered by analysis (can you pass it to a teammate?)
16. Building an issue tree: the problem Our client, a retailer of fine and expensive oriental rugs in Manhattan, is experiencing declining profits. Why and what can they do about it?
17. Building an issue tree: disaggregating the problem What are the profit margins of the company’s three main competitors? Is the industry as a whole doing well? Have there been new entrants to the Manhattan luxury rug market in recent years? Industry-related factors Are macroeconomic factors hurting consumers’ ability to buy luxury goods? Have consumer preferences shifted? Are consumers turning to substitute products rather than rugs? What is causing profits to decline for the rug company? How are the political conditions in the supplier countries? Are there issues along the supply chain? Is the price of raw materials increasing due to lowered supply? Is the company selling fewer rugs than before? How have the company’s revenues changed? Has the company lowered prices recently? Company-specific factors Has the cost of rent changed? How have the company’s costs changed? Have labor costs changed? Is the company experiencing high debts on inventory?
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