4. Four steps for business analysis are discussed in the chapter (strategy analysis, accounting analysis, financial analysis, and prospective analysis). As a financial analysts, explain why each of these steps is a critical part of your job and how they relate to one another?
a. Business Strategy Analysis
This analysis is help managers to identify key profit driver and strategy risk. Business strategy analysis includes analyzing a firm’s strategy and its strategy in order to create competitive strategy. Most managers set corporate goals and then start to formulate the strategies that help to achieve those goals. However the most critical is how two fundamental problems is the connection in approaching the strategic management. First, most business are engage in concerns and have set in certain activities that are a reflection from decision made in the past. Second, managers are tempted to engage in a strategic of the firm without understanding the health of their existing strategy. This can create a new problem for present strategy. After indicate a strategy process complete, the manager then can assess the quality of the strategy.
b. Accounting Analysis
The purpose of this analysis is to evaluate accounting quality system in a company by assessing of the stability, viability, and profitability of a business or a project. An accounting analysis carried out by professionals who know how to prepare reports and how to use of info obtained from financial statements and other reports. One of the key areas of accounting analysis is to conclude of company’s past performance into an estimate of future performance. Accounting analysis is includes of calculating ratios from the data to compare with other companies.
c. Financial Analysis
This analysis is use to calculate the investment value of a business, stock or other asset. There are two important skills need related to financial analysis. First the analysis has to be systematic and efficient. Second, allow the analysis to use financial data to explore company issues.
Financial analysis can help an investor to get wealth of information about a company. Knowing relationship between ratios and what the function for future are key to determine future success. Financial statements are essential for business because this can help management to find information and knowledge for investor.
d. Prospective Analysis
This analysis is focus on forecasting analysis of future financial information of a company and the last step from business analysis. The key areas in this analysis are projecting income statement and projecting the balance sheet. The most important element is the forecasting of the revenue growth. This is based on PEST analysis; industry analysis; company-wide analysis. Forecasting has to be comprehensive including all financial statements. The key should be the key measures such as sales growth, ROE, and earnings.
3 Questions for discussion
1. What is the biggest effect after Dot-Com crash in 2000 for investors? 2. What are the primary factors that led to the burst of the Internet bubble? 3. What is the different between buy side analysts and sell side analysts?
A strategic analysis for a business is one of the most basic and useful tools for strategic business planning. Often, a strategic analysis will be referred to as a SWOT analysis; this is an acronym for the major divisions of the analysis: Strengths, Weaknesses, Opportunities, and Threats. Within these four areas, you will define your organization’s position relative to the competition and operational environments. While many believe it is best used at the organizational level, when properly implemented, a SWOT analysis will often return targeted, productive results at division or departmental levels of business.
Writing a Strategic Analysis for Business Organizations
1. Define your problem or goal that necessitates the analysis. Some examples might include: how can we gain competitive market share; how can we build our company image, or how can we refine our logistic, production, or operational systems. A clear definition of what issue the strategic analysis should answer will help guide your effort toward success. Don’t forget to identify what portions of the business entity will be instrumental in the analysis. Often, business leaders will attempt to analyze the whole company; focusing on the specific departments that will impact or be impacted most by the issue will result in solutions that are more targeted and relevant.
2. Gather the information needed to assess the strengths and weaknesses of your firm regarding the issue or problem at hand. You can conduct observational studies or one-on-one interviews, and/or assemble qualified teams to brainstorm and report on these areas. Some strengths could be: staff, skills, property or location, financial resources, or processes (quality control, for example). Weaknesses might include: lack of any relevant strengths or capacities to obtain them (like poor credit/inability to obtain expansion financing).
3. Define what the potential opportunities and threats may be within the scope of the problem you are trying to solve. It is usually best to assemble a team composed of individuals within the firm with relevant knowledge regarding the departments and competitive environments that will be key to managing the issue and implementing the solution. This team would then identify the opportunities and threats to the firm’s efforts that exist within the firm as well as in the external, competitive environment. Some examples of opportunities could include: changes in government regulations, shifts in public opinion, or price reductions on (or the finding of alternative sources) of raw materials. Examples of potential threats could include the same items just listed if the effect is a negative one in relation to the company (that is, if public opinion turns against your industry, product, or company).
4. Review the results of your analysis. It might be helpful to chart your findings with a section each on the company's strengths, weaknesses, opportunities, and threats. Use the information derived from the analysis to define how to best use your strengths, remedy your weaknesses, optimize any predicted opportunities, and counter any perceived threats.
- Strategic analyses are subjective by nature; be certain that in developing and analyzing your results you are as honest and to the point as possible.
About the Author
Malik Sharrieff is a marketing and business communications professional in New Orleans. He has more than 15 years of experience in marketing, public relations and customer relationship management; over eight years of experience as an academic writer; and as an online journalist for two years.
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