SWOT Analysis & Quality of Management
What are Strengths, Weaknesses, Opportunities and Threats (SWOT) Analysis?
Each & every business has its own strengths and weaknesses. It is excellent for the analysts to evidently recognize and file both of these to have a obvious representation of the circumstances. Correspondingly, occasion to the business and possible risks to the trade can be recognized by the analysts in the form of opportunities and threats. SWOT analysis is nothing but a way of filing strengths, weaknesses, opportunities and threats at one position in a brief way.
While Strengths and Weaknesses are internal to the company, Opportunities and Threats pact with the external environment of the business. SWOT analysis gives person who reads a short but complete and momentous snapshot of a business.
Quality of Management (Including Independent Directors) and Governance
Governance means briefing the “Truth” in all features of life. Fascinatingly, either management is moral or not principled, as there can’t be something in between.
According to Warren Buffett – “I look for integrity, energy and intelligence in management.” In nonexistence of first quality (integrity), management with later two qualities will compress the business and investors at a point of time. While handing over the money to the management, analysts should spotlight considerably on the integrity/ethical feature of the business. Regrettably, this characteristic seems to be totally missing from the research reports.
Market may overlook unskilled management but not the immoral management, over a period of time.
A genuine example of this is brand ‘Amul’ – which has turn out to be identical with milk in India. Right from its setting up till date, it has taken lakhs of small farmers all along with it and still has guaranteed that each person of the co-operative is given his/ her due in the most see-through style while on the client side has always ensured that quality is never cooperation.
Analysts should also pay notice to the eminence of independent directors in a business. Independent directors are a big misleading notion where companies/promoters decide to keep their friends and others, without thought of significance, as their independent directors.
This is taken care beyond disbelief exercise to bring some theorist to the business to take it well-known. Analysts should focus on the credentials and skill of these independent directors, how many meetings they are present at and what is their assistance to the business. It may be good rehearsal to interrelate with some of them to appreciate them better.
What is pricing Power and Sustainability of This Power?
Pricing power explains the ability of the company to direct pricing of its products or services. As companies would love to charge as much as they can to the customers, in exercise, it may not be likely. Pricing is a point of many parameters, external and internal, smallest amount of which is the company’s decision. For the most part of the businesses are price takers and not price makers.
In any aggressive industry/business, pricing demand is practically missing. According to the quote of Charlie Munger – “in a competitive landscape, every business is as smart as its dumbest competitor.” This is since if a competitor reduces the prices noticeably, others would have no option but to match that price to stay in the business.
The pricing power that a company has will also be based upon the suppleness in demand show signs of by the product or service. If a boost in price marks in a lessening in demand, then the facility of the company to pass on cost boosts or have a higher mark-up will be incomplete.
Consequently, pricing power is normally a role of industry dynamics, suppleness of demand and branding and customer loyalty/addiction. Occurence of strong brands and/or virtual monopoly play a significant feature in the pricing power. Tobacco business stands as a good business.