Strategic & risks analysis

Our reports emphasize the analysis of the main risks attached to the subject company, risks in terms of business strategy, but also credit risk and dilution risk, with a significant emphasis on earnings quality. 

In order to understand the risks attached to the subject company, we perform a strategic analysis as part of our diligence process.

What is strategy?

Strategy is, defining goals and objectives to these goals, then allocating scarce resources to the attainment of these objectives. Allocating scarce resources implies choices.

How we perform a strategic analysis:

  • We use common sense and simple checklists (Porter, SWOT, Critical Success Factors) to understand the environment:
    • Collect the relevant data, flag the more significant trends, risks, opportunities… and understand what should be the goals and objectives of the subject company.
    • Connect the dots between the data and strategy: what are the principal obstacles to the goals? Is the company setting sensible intermediary objectives to overpass these obstacles?
    • How is the company allocating its resources in order to achieve the objectives?
    • Are the company’s actions in line with our expectations?
  • We get other perspectives on the same industry by analyzing information from competitors
    • What are competitors doing? How could competitors’ actions interact with the company’s actions?

==> What are the likely outcomes? what are the main risks ?

Competition

Competition continually drives down the rate of return on invested capital to a minimum except when a company is protected from competition by a competitive advantage.

Competitive advantage

A competitive advantage is a distinctive ability only if this ability is in demand

  • Distinctive means that the ability cannot be easily replicated by competitors.
  • Not all competitive advantages are sustainable, yet a company should always play to its strengths.

Transient competitive advantages

Changes in the environment can affect a company’s competitive position either because it lowers barriers to entry, or because it allows for the replication of the company’s distinctive ability or because it affects demand or because substitutes are better responding to demand, or etc. . competitive advantages and competitive strengths are part of a dynamic process.