Unlock the secrets to assess companies’ strengths, weaknesses, opportunities, and threats to find better investment options.
Have you ever been in an interview where you had to talk about your strengths, weaknesses, opportunities, and threats and wished you could do the same for someone else?
Today is your day because you can conduct a SWOT analysis on any stock or sector you want. How?
Well, in today’s article, we are going to put the spotlight on how you can analyse the strengths, weaknesses, opportunities, and threats of your favourite companies or industries.
What is SWOT Analysis?
SWOT stands for strengths, weaknesses, opportunities and threats. It is a strategic planning tool to evaluate a company’s internal strengths and weaknesses, like competitive advantage or poor management. It also analyses the external opportunities and threats a company would face, like an emerging market or economic downturns of the market or industry.
After conducting this analysis, you get a comprehensive overview of a company’s current position in the market and help you identify areas where it can leverage its strengths and opportunities while addressing weaknesses and threats.
Now, let’s understand how to conduct a company SWOT analysis.
Strengths of a Company
The first and easiest part is to look at the company’s positives or strengths, which will help you make informed investment decisions. In this process, you will gather valuable insights into the company’s competitive advantages and core strengths, enabling you to gauge its potential for growth and sustainability.
So, here are the things you must look at while evaluating the company’s strengths.
Strong Financial Performance
If the company has a solid and consistent track record of revenue growth over the past few years and its net income and margins are improving, it represents its strength. Similarly, a company with low debt levels and a manageable debt-to-equity (DE) ratio can reduce financial risk.
Identify companies with unique selling points or competitive advantages that set them apart. These days, companies making an environmental impact are also considered an attractive investment option. So, you may also check for the company’s corporate social responsibility (CSR) and sustainable practices.
Listen to the management’s commentary, prioritise companies with transparent and shareholder-friendly management practices, and must be dedicated to the company’s future.
While analysing, consider companies that actively adopt new technologies to stay ahead. Consider companies that invest in research and development and are keen on the company’s growth prospects.
Weaknesses of the Company
Analysing the weaknesses of a company involves understanding the areas where the business needs improvement to stay competitive. These weaknesses can hinder the company from performing at its best level.
So, here are the things you must examine while examining the company’s weaknesses.
Look at how the company is doing compared to its competitors. If competitors are doing better, find out what the company is lacking in comparison. You may conclude that the product is not up to the mark, the goodwill of the company is not that great, operational inefficiency leads to the high cost of the product, or the after-sales service is poor, etc.
Review the company’s financial situation. Pay attention to how much debt they have and how well they manage it. High levels of debt can be a problem for the company. Similarly, you can also look at cash flows and understand how the company manages its day-to-day activities.
Product or Service Gaps
See if there are any gaps in the company’s products or services compared to competitors in terms of advanced technology or pricing. Understanding this can show why the brand is lagging behind and where they need to improve.
Opportunities of the Company
Analysing opportunities for a company involves keeping an eye on events that could give them a competitive advantage in the future. These opportunities may arise due to developments in the market they serve or technological advancements they can utilise.
While examining a company, it’s important to check if they are capitalising on all the potential opportunities, as it can significantly impact their ability to compete in the market against their competitors.
So, this time you need to find answers to some questions.
Are there any interesting market trends that the company can leverage? For example, a growing demand for eco-friendly products could be an opportunity for sustainable businesses.
Is the company aware of any changes in technology that they can take advantage of? Like new tech like AI bots for customer service could enhance their efficiency and customer experience.
How is the company adapting to changes in technology or market dynamics? Are they embracing changes as opportunities or struggling to keep up?
Is the company up-to-date with policy reforms? Changes in tax rates like imposing windfall tax, import and export duty, or trade agreements could make or break opportunities for the company.
Threats to the Company
Threats to a company come from external factors that have the potential to negatively impact its operations and performance. An investor must be mindful of these threats when making investment decisions rather than blindly following a company based on its profit-earning history.
So, you must check if the company is exposed to these threats:
Increase in raw material cost. When the raw material cost increases, the profit margins decrease. For example, expensive semiconductor chips did hamper EV car makers’ margins during the pandemic.
Suppose there is intense competition from rival companies. If yes, it can erode market share and pressure pricing and innovation.
If the company is laying off employees right, left and centre, it can cause an unimpressive view of the company, which may cause difficulty in attracting and retaining skilled employees.
If the company fails to adapt to new tech or disruptive innovations, it can threaten its relevance and market position.
Evaluating how a company manages these threats and whether they are seizing opportunities from evolving technologies is essential. For instance, some companies embrace automation and artificial intelligence to enhance productivity and efficiency.
In conclusion, conducting a SWOT analysis can provide invaluable insights into a company’s true picture and capabilities, much like how an interviewer seeks your SWOT to assess your abilities. By evaluating a company’s strengths, weaknesses, opportunities, and threats, investors gain a comprehensive understanding of its current position in the market and its potential for growth and sustainability.
*The article is for information purposes only. This is not an investment advice.