Fundamental Analysis - Analyzing about the Organization

ORGANIZATIONS, OPPORTUNITIES, THREATS, COMPETITORS ! 

OPPORTUNITY AND THREAT ANALYSIS  

The opportunity and threat analysis, also referred to as environmental analysis, is a strategic planning method for identifying and analyzing external opportunities to improve an organization’s performance as well as external risks to the organization’s success. It is part of the SWOT analysis which is commonly used to evaluate the strengths, weaknesses, opportunities, and threats of an organization or project. In addition to strategic planning, the opportunity and threat analysis can also be used for quality development, marketing purposes, location analysis, as well as in product politics.

External factors analyzed may include macroeconomic, technological, political, and socio-cultural change as well as changes in the marketplace or competitive position. The opportunity and threat analysis can be applied to a wide variety of aspects of an organization, including financial, personnel, technology, and products. The method helps organizations to minimize threats and take the greatest possible advantage of opportunities available to them which can result in competitive edges. 

COMPETITION 

Simply looking at the number of competitors goes a long way in understanding the competitive landscape for a company. Industries that have limited barriers to entry and a large number of competing firms create a difficult operating environment for firms. 

One of the biggest risks within a highly competitive industry is pricing power. This refers to the ability of a supplier to increase prices and pass those costs on to customers. Companies operating in industries with few alternatives have the ability to pass on costs to their customers. A great example of this is Wal-Mart. They are so dominant in the retailing business, that Wal-Mart practically sets the price for any of the suppliers wanting to do business with them. If you want to sell to Wal-Mart, you have little, if any, pricing power. 

REGULATION 
Certain industries are heavily regulated due to the importance or severity of the industry's products and/or services. As important as some of these regulations are to the public, they can drastically affect the attractiveness of a company for investment purposes. 

In industries where one or two companies represent the entire industry for a region (such as utility companies), governments usually specify how much profit each company can make. In these instances, while there is the potential for sizable profits, they are limited due to regulation. 

In other industries, regulation can play a less direct role in affecting industry pricing. For example, the drug industry is one of most regulated industries. And for good reason - no one wants an ineffective drug that causes deaths to reach the market. As a result, the U.S. Food and Drug Administration(FDA) requires that new drugs must pass a series of clinical trials before they can be sold and distributed to the general public. However, the consequence of all this testing is that it usually takes several years and millions of dollars before a drug is approved. Keep in mind that all these costs are above and beyond the millions that the drug company has spent on research and development. 

All in all, investors should always be on the lookout for regulations that could potentially have a material impact upon a business' bottom line. Investors should keep these regulatory costs in mind as they assess the potential risks and rewards of investing.