- What are the company’s key strengths and weaknesses? What are its key areas of specialisation and expertise?
- Which tangible/intangible assets does the company possess? Does strong brand/customer loyalty exist? How does this compare with competitors’ brand/customer loyalty? Does the company have human resources with the necessary capabilities (skills, experience and expertise) to create, brand, distribute and market a viable product or service? Does the business have the necessary physical resources to successfully operate, most notably start-up capital (if it is a new business), cash for operations, a business premises, the necessary machinery and efficient distribution channels?
- Businesses lacking necessary capabilities and resources could partner with other businesses or employ people who have: relevant business experience; a network of beneficial contacts (which could facilitate the financing, production and distribution processes); knowledge of the target market; or the resources required to effectively operate. For example, small businesses could share office space, whilst start-ups could partner with investors willing to provide capital in exchange for equity (such investors are typically known as business angels).
- What is the company’s unique selling point (USP)? Although in many cases a company’s USP will relate to its product(s), a company may have other unique selling points, for instance, key human resources, a widely recognised and trusted brand, a reputation for good customer service, or unique distribution channels.
- What is the company’s financial situation? Is it enjoying healthy profits? Are its costs under control? Does it have high fixed costs? What is its capital structure? Is it highly geared? How has it performed over the past 1, 3, 5, 10 years? Have sales increased/decreased over time? Have its profit margins remained stable/increased /decreased? Has the company experienced any serious financial difficulties/defaulted on its debt?
The answers to these questions can help you to determine whether a company is well positioned to take advantage of a particular opportunity, follow a proposed course of action or tackle a particular issue that has arisen.
- Capital Structure: a company’s ‘capital structure’ indicates how it has financed its operations and growth. If a company has a high ratio of debt in comparison to equity, this means it is ‘highly geared’ and indicates it may lack sufficient assets to support debt repayments if additional debt is taken on. Lenders may therefore perceive highly geared companies as more risky borrowers and consequently charge them higher interest rates (or even refuse to lend them capital).
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By Jake Schogger - City Career Series