Industry and economic analysis
The industry and economic analysis is often an important component to the business valuation. The industry and economic analysis provides context for the outlook for the business. The analysis can be used to support cash flow forecasts and the risk attached to those cash flow forecasts.
Industry factors to consider that may impact the valuation include:
- What stage in the lifecycle is the industry: growth, maturity, or decline?
- What is the current size and potential size of the market?
- What are the major markets the industry serves?
- Is the industry fragmented with many small competitors or are there a few large businesses?
- What are the barriers to entry? Is it easy for new competitors to enter the market?
- What are the key success factors and how do other businesses in the industry perform?
- How much is the industry impacted by changes inregulation and legislation, government policy and economic factors?
- What key economic factors affect the industry?
- What are the trends and the outlook for the industry?
Economic factors to consider that may impact the valuation include:
- What is the local, domestic, and global economic outlook and how does it impact the business?
- What is the trend in commodity prices and exchange rates and does that impact the business?
- What is the outlook for inflation?
- What is the outlook for consumption, investment, exports, and employment?