Doing an industry and business analysis

To understand a business, we need to look into the industry as well as their business mode. We'll look into the industry analysis first. We will need to know which industry is our company in, to understand it better.

Generally, there main industry classifications are shown below:

Main industries
Banking and Finance	Clean Technology	Commodities
Education	Manufacturing	Food
Hotels	Information Technology	Logistics
Medical	Biotechnology	Oil and Gas
Real Estate	Recycling	Retail
Shipping	Telecommunications	Water

Their key characteristics are summarised below:

Characteristics	Most applicable to
Higher profits volatility	Banking and Finance, Hotels, and Real Estate industries
Stable profits in good times	Manufacturing, Logistics, Retail, and Shipping industries
Stable profits regardless	Commodities, Food, Medical, Oil and Gas, Water, Telecommunication, and Education industries
Focus on future profits	Biotechnology, Telecommunication, Clean Technology, Recycling industries

After the industry analysis has been done, we can then go into specifics of how the company behaves in the industry itself. Below are some guidelines:

Guidelines	Description
Revenue	How does the company make money? Is the revenue recurring Is the product/ service unique? Is the revenue pattern regular?
Costs	Is there a higher fixed or variable cost? Is cost incurred before or after generating revenue?
Key criteria	What are the important criteria for the company to survive? Does the company have those criteria?
Competitive advantage	Does the company offer something special? Is the company able to keep this competitive advantage?
Growth opportunities	What opportunities does the company need to grow? Are those opportunities present?

Only after we have analysed the business clearly, then can we go ahead to valuate the company.

"It is far better to buy a wonderful company at a fair price, than buy a fair company at a wonderful price".