NISM Series XV : Research Analyst Certification Exam Notes
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Barriers to entry (Threat of new entrants) - An industry which does not face the threat of new competitors coming in would be an attractive industry for investors/owners. There could be several barriers to entry for new entrants in a business - licensing, required competence/skills (IT products), capital (oil and gas), distribution reach (banking and finance), brand loyalty of customers with the existing participants (toothpaste, coffee markets) etc. etc. This is what Warren Buffet calls as 'the moat'; he says 'In business, I look for economic castles protected by unbreachable 'moats'.' This essentially means he looks for businesses with high entry barriers. Such businesses will have pricing power viz. can sell the products at a premium without fear of losing customers
Political, Economic, Socio-cultural, Technological, Legal and Environmental (PESTLE) Analysis - PESTLE Analysis stands for Political, Economic, Socio-cultural, Technological, Legal and Environmental Analysis. Some models also extend this to include Ethics and Demographics, thus modifying the acronym to STEEPLED. This analysis is done more from the perspective of a business which is looking to setup unit offshore and analyzing several countries to choose from. This model primarily analyses the external environmental factors that will act as influencers for a business.
Boston Consulting Group (BCG) Analysis - While models such as Porter's and PESTLE are used to analyze the industries and economies, the BCG Analysis, developed by the Boston Consulting Group, looks at different segments of a business unit at portfolio basis through the lenses of market growth and cash generation.
Stars: These are segments in a business where market is growing rapidly and company is having a large market share. This segment generates increasing cash for the business with the passage of time.
Cash Cows: These are segments which require low cash infusion for investment to maintain market shares because of low growth prospects but at the same time steadily generate cash for the company from the established market share
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