Narrative and Numbers: The Value of Stories in Business (Columbia Business School Publishing)

by Aswath Damodaran

Table 6.1 Market Analysis Category Questions Comments Growth How quickly is the overall market growing? In addition to looking at the average growth rate over time, you also want to detect shifts in the market across product lines and geographies. Are some parts of the market growing faster than others? Profitability How profitable is this business, in the aggregate? Look at profit margins (gross, operating, and net) and accounting return trends over time. Are there any trends over time in the profitability? Investing for growth What assets do companies in this business have to invest in, to grow? With manufacturing companies, investment is generally in plant, equipment, and assembly lines, but with technology and pharmaceutical companies, the investment may take the form of R&D. How much investment are companies making collectively in this business to generate their growth? How easy is it to scale up? Risk How much do revenues and earnings vary across time? Volatility in your revenues/earnings can be caused by macroeconomic variables, which can include interest rate, inflation, commodity price, and political risk, or from company-specific variables. What are the forces that cause these operating numbers to change? How much debt (or fixed commitments) do companies in this business tend to carry? What are the risks that companies in this business may fail? What is the trigger (debt payments due or running out of cash) that cause failure?