The Corporate Overview is the third part in my series examining Systematic Analysis.
Previous Entries include:
The Corporate Overview examines the industry a company works in and what business strategies companies are following to gain marketshare.
There are a couple of ways to examine what industry a company belongs in. The easiest is perhaps using the internet to it for you. Yahoo Finance and Reuters have whole sections just devoted to looking at the industries. Some of the industries include: Semiconductor- Memory Chips, Personal Computers, Farm Products, Foreign Utilities, Toys & Games, Drugs - Generic, Networking & Communication Devices, and Medical Instruments & Supplies. This is just a small sampling, but it should give you an idea. Companies within an industry are likely to face similar obstacles and will be selling to similar markets.
There are two government provided industry codes that some investors may want to try as well. SIC Standard Industrial Classification Codes and NAICS North American Industry Classification System Codes. Each of these codes file companies under very narrow definitions, which may help in finding an appropriate industry.
As an example, I'm going to use the CIGNA Corporation. Under the SIC Code, CIGNA is considered a Finance company, which provides it with the first number 6. Furthermore, it is an insurance carrier, which makes the second number 3. The number 24 signifies that CIGNA is in the business of providing "Hospital and Medical Service Plans ". Put it together and you have CIGNA's SIC code of 6324. Other companies with the same SIC or NAICS number can be considered industry peers.
Developing a business strategy is also an important part of the Corporate Overview. Investors seek to find how companies intend to beat the competitors. The three areas that should be looked at in the strategy are as follows:
The combination of an industry review and a review of business strategy provide an investor with the Corporate Overview. Next time, I will look at the next step in Systematic Analysis: Quantitative Financial Analysis. Thanks for reading and drop me a comment. --------Sincerely, Trevor Stasik
I would like to remind you to visit the website of Gary Giroux, a very knowledgeable author in financial analysis: www.wiley.com/college/giroux.
Much of the material in this series of blog entries contains wisdom borrowed from his book "Financial Analysis: A User Approach"
Financial Analysis, Corporate Overview, Investing, Industries