Introduction to Industry and Company Analysis for the CFA Level 1 Exam
Embark on a journey to explore the fascinating world of industry and company analysis. This voyage will take you through the key concepts and techniques essential for the CFA Level 1 Exam. Let’s dive right in!
Uses of Industry Analysis
Get ready to unravel the mysterious world of industry analysis! You’ll decode why it’s so crucial for understanding a company’s environment, spotting investment gems, and explaining portfolio performance. Plus, you’ll dive into the three chief methods of industry classification: product and service-based, business-cycle sensitivity, and statistical similarities.
► Brush up on these vital concepts right here.
Industry Classification Systems
Peel back the layers of industry classification systems, spanning from commercial to government. Learn why they’re key for comparing valuations and spotting trends, and get familiar with notable systems like GICS, Russell Global Sectors, and the NAICS. Finally, step into the shoes of an analyst and master the art of crafting peer groups for better valuation comparisons.
► Dive into the world of industry classification systems right here.
Industry Analysis – An Overview
Embark on a journey beyond the usual competitors in an industry. Recognize the key roles played by customers, suppliers, potential newcomers, and substitutes in defining competition. You’ll also probe into crucial forces such as rivalry among competitors and the threat of new entrants, along with the external factors that sway industry growth, profitability, and risk.
► Begin your exploration of industry analysis right here.
Porter’s Five Forces
Step into the world of Porter’s Five Forces, the foundational tool for industry analysis. Uncover the factors that crank up competition, from rivalry among existing competitors to the threat of substitutes. Plus, get a sneak peek into how an analyst assesses an industry, including barriers to entry, industry concentration, and price competition.
► Dive into the heart of industry analysis with Porter’s Five Forces right here.
Barriers to Entry
Unpack the role of barriers to entry in the competitive dynamics of an industry. Understand why high barriers can lead to increased profitability, yet sometimes limit pricing power. Discover how industries with low barriers often have limited pricing power and how evolving factors, like technology and regulation, can alter these barriers.
► Uncover the impact of barriers to entry on industry competition here.
Uncover how industry concentration shapes the competitive landscape. Discover why a few dominant players can lead to less competition and more pricing power, but not necessarily always. Grasp the hallmarks of a fragmented industry and the competitive challenges it presents.
► Get a grip on the implications of industry concentration here.
Industry Capacity and Market Share Stability
Learn how to identify if an industry is in a state of overcapacity or undercapacity and what it implies. Understand the factors contributing to the time lag between the decision to increase capacity and the actual increase. Plus, get to grips with market share stability and its effects on competition and pricing power.
► Explore more about industry capacity and market share stability here.
Industry Life Cycle and Price Competition
Get a clear picture of the five stages in the industry life cycle and their unique challenges. Recognize the limitations of industry life cycle analysis in the face of external factors. Unravel the dynamics of price competition, delving into how customer values influence price sensitivity.
► Join the adventure of industry life cycle analysis and price competition here.
External Influences on Industry Growth, Profitability, and Risk
Explore the maze of external influences on industries, digging into the effects of macroeconomic factors, technological advancements, demographic changes, governmental policies, and societal shifts. Learn how these factors collectively mold the growth, profitability, and risk of various industries. Reinforce your understanding with an insightful case study about the airline industry.
► Jump into the exploration of external influences on industries here.
Sample Industry Strategic Analysis
Experience a strategic analysis of the branded pharmaceuticals industry, understanding how industry characteristics like high entry barriers, concentration, and low price competition contribute to its competitive landscape. Also, explore how external factors like technological advances, demographic shifts, and governmental influences impact the industry. Wrap up with a challenge to analyze an industry of your choice.
► Get hands-on with industry strategic analysis in the pharmaceuticals industry here.
Unpack competitive strategies that companies employ, focusing on low-cost and differentiation strategies. Discover key components to include in a company analysis and learn how to utilize the return on equity (ROE) ratio. Finally, delve into the world of spreadsheet modeling, its benefits, and its limitations.
► Learn to analyze a company’s competitive strategy and financials here.