A company is a part of the industry. As the industry grows, so does the company flourishes. Hence, before making any investment decision in a company, an investor is required to do a thorough research of the particular industry-type in which the company where he wants to invest exists. This research basically gives rise to Industry analysis, which becomes a crucial part of investment decision making.
Industry analysis is a systematic arrangement of evaluating all the factors concerning a particular industry in which the company of your choice exits. Now these factors can be largely based on the competitiveness in that industry, demand supply pattern, regulatory rules and policies of a particular business form. Any company or a business form which is likely to make the best use of the available resources and combat the challenges will be able to make the out of the given opportunities.
In this article, we will explore the factors that affect the industry analysis:
Industry as a going concern
The well known concept of going concern is applicable to all industry types. This means that the any industry is here to stay and will go long-term. Based on this, the investors analyze the growth opportunities of any industry.
The investment decision may vary from one industry to another depending on the future prospects of that industry. There may companies which is making loads to profits and still may not be a fundamentally good company to invest in. On the other hand, it may also happen that a particular brand in a company has done really well and the stock prices shoot up quickly.
No matter how good the company is luring to the eyes, and industry analysis is a compulsion in this case to evaluate the growth of that particular company or industry.
Apart from growth, an investor also needs to analyse the market saturation level, which will help him to understand the market sustainability of that industry.
Company as a part of the industry
A company holds a share of the larger industry. An investor needs to understand as to what is the position of that particular company in the industry. If the company has a small share and less growth opportunities in that industry, then the investment decision may not be that viable.
If an industry is already filled with the barrage of company in the similar line, the entry for any new company would be very difficult.
The share of a company in an industry is one of the most important factors affecting the industry analysis.
Competition and demand-supply pattern has a great role to play in industry analysis. If a company has a monopoly over a particular product in an industry, it is quite obvious that the company will be able to manipulate the prices and hence, the investors can be quite sure of taking up this company. However, if the competition is high, then it would be difficult for the investors to choose as to which company is keeping well in that particular industry.
Industry analysis in this case helps the investors to filter the list of companies doing well in the particular industry chosen by the investor. Post this it helps to evaluate based on the competition as to which company to choose.
Rules and regulations
The rules and regulations are one of the crucial factors affecting the growth opportunities of a company. The more are the number of regulations imposed on the company, the more likely the company is suppose to be duped in the formalities and tax commitments. This in turn directly affects the growth opportunities of a company.
For instance, with the imposition of GST, several industry types have entered into complexity which has directly affected their growth pattern.
An investor has to evaluate his investment decision based on the industry analysis keeping in mind the broad factors affecting the same, as mentioned above.