Forums › OBU Forums › Business Analysis/ OBU Topic 8: Competitor for ratio analysis › Reply To: Business Analysis/ OBU Topic 8: Competitor for ratio analysis
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@Joey first I suggest you should read p30-31 of the Info Pack 2013/14 as that explains WHY you need to be able to make comparisons.
Now let’s look at an actual real life example where a company could be doing well in terms of profit but has done badly compared with its competitors, a company that was a market leader in 2008 and still makes good profits – Nokia. In fact their profits over the years have increased as mobile phone usage has become widespread – so if you were initially just confining yourself to analysing their performance (and totally ignored what has gone on with competitors) you would probably think they were doing well. BUT are they? We now know that Nokia is a good example of a company that took its eye off the ball – and is seriously struggling (and in fact it was announced yesterday that its mobile business has been bought out by Microsoft). If you compared Nokia’s performance over the last 10 years with its rivals (Samsung, Apple) you would see instantly that the ‘good profits’ from the initial analysis in fact are very poor profits in reality – for the last few years they have fallen dramatically and in a frighteningly short space of time IN COMPARISON with their rivals (from market leader to pulling out of the market altogether in fact!!!!). So you see only by putting your company in an industry context can you do a proper analysis and valid evaluation and draw sensible conclusions!
So to pass evaluation you probably now appreciate how important it is to be able to put your company in an industry context. Regarding the company you have chosen – unless you can do a full analysis of its performance which in essence requires some form of bench-marking to be meaningful, then you are probably on a hiding to nowhere. As @bassaniobroke says – why have a wobbly ride on one wheel when 2 wheels are available?
Sorry if this is not what you wanted to hear but my role is to tell students how it is…..