Competitive Analysis 

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Competitive Analysis

Whether a company can achieve its sales and earnings objectives depends in part on how it competes within its industry. Industry sales and earnings may be growing, but if the company is not competitive enough, it may not capture a large enough portion of the increasing sales in the industry.

How a company competes in an industry depends on many factors:
* The resources the company has in relation to its competitors
* The company’s range of products versus its competitors’ products
* The level of success of the company’s existing range of products
* The company’s level of innovation in its introduction of new products
* The company’s ability to diversify into new markets
* The strength of the company’s competitors

You should consider these factors when determining the relative strength of a company in an industry.

Quality of Management

Another factor to consider is the quality of management. Access to a company’s management is often difficult for financial analysts and virtually impossible for the general investing public. The most you can do to determine the quality of management is to look at the company’s history and read financial newspapers for stories about management. For example, a high turnover rate for top and middle management indicates that all is not well. A company with an effective management generally is assumed to be more successful in meeting its sales and earnings objectives than a poorly managed company.

ExxonMobil, for example, managed to consistently increase its earnings, even during periods of declining oil prices. In addition, ExxonMobil faced a negative climate in the early 1990s owing to the Exxon Valdez oil spill. ExxonMobil’s management was not deterred and stuck to its original investment objectives, which were projects with high returns. This strategy supported the company’s profits, in contrast to the frivolous investments made by many of the other oil companies during the same period.

How chief executive officers (CEOs) are paid in relation to the company’s stock performance tells much about management. The stock price of Cisco Systems declined by 31 percent in 2002, but the CEO’s compensation declined by 67 percent in that same year. These circumstances were certainly not the same at many other companies, such as K-mart, JDS Uniphase, Quest, and WorldCom. When their stock prices declined significantly, the CEOs and members of top management rewarded themselves with additional salaries and bonuses.

The Internet has made gaining access to information about companies and management a little easier for individual investors. If you want more information, the first stop is the company’s home page on the Web. At the ExxonMobil Web site (, for example, you can read about the company’s sales strategies and how it is positioning itself for the future. Investors also can read the company’s annual and quarterly reports. Read the “Management Discussion” section to assess any future trends or investments. You also can e-mail questions to the investor relations’ staff of companies in which you are interested. The speed and quality of their replies will tell much about how management views its shareholders.

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