Industry analysis is most likely to provide an analyst with insight about a company’s:
A)
competitive strategy.
B)
pricing power.
C)
financial performance.
Industry analysis provides a framework for an analyst to understand a firm in relation to its competitive environment, which determines how much pricing power a firm has. Competitive strategy and financial performance are aspects of company analysis.作者: prashantsahni 时间: 2012-3-30 10:45
Commercial industry classification systems such as the Global Industry Classification Standard (GICS) typically classify firms according to their:
A)
correlations of historical returns.
B)
sensitivity to business cycles.
C)
principal business activities.
Commercial providers of industry classification systems such as the GICS classify firms according to principal business activity, such as Consumer Staples, Financial Services, or Health Care.作者: prashantsahni 时间: 2012-3-30 10:46
Auto manufacturers and home builders would most likely be grouped together in an industry classification system based on:
A)
type of business activity.
B)
sensitivity to business cycles.
C)
dividend yields.
Auto manufacturing and home building are both cyclical industries. An industry classification system based on business cycle sensitivity would be the most likely to group firms from these industries together.作者: prashantsahni 时间: 2012-3-30 10:46
Which of the following industries is most likely to be classified as non-cyclical?
A)
Autos.
B)
Utilities.
C)
Housing.
Non-cyclical industries are those for which demand is not highly sensitive to business cycles, such as utilities, health care, and food and beverages. Housing and autos are examples of cyclical industries.作者: prashantsahni 时间: 2012-3-30 10:47
A firm’s earnings are most likely to be cyclical if:
A)
the firm produces luxury items.
B)
most of the firm’s costs depend on its level of output.
C)
the firm operates in a growth industry.
Producers of luxury items tend to have cyclical earnings because consumers typically decrease their purchases of these items during economic recessions. The earnings of firms with high percentages of variable costs are not as likely to be cyclical as those of firms with high percentages of fixed costs (i.e., high operating leverage). A growth industry has demand that is strong enough that earnings remain relatively unaffected by the business cycle.作者: prashantsahni 时间: 2012-3-30 10:47
When constructing a peer group of firms, an analyst should least appropriately consider the firms’:
A)
industry classification.
B)
business cycle sensitivity.
C)
cost structures.
A peer group should consist of firms that are alike in their principal lines of business, along with other similarities such as cost structures and access to capital. Firms can be similar in business cycle sensitivity but dissimilar in terms of their business activities (e.g., a firm in the home building industry and a firm in the heavy equipment manufacturing industry).作者: prashantsahni 时间: 2012-3-30 10:48
For relative valuation, a peer group is best described as companies:
A)
in a similar sector or industry classification.
B)
at a similar stage of the industry life cycle.
C)
with similar business activities and competitive factors.
An analyst should form peer groups of companies that have similar business activities, drivers of demand and costs, and access to capital. Companies in the same industry or sector and companies at the same stage of the industry life cycle are not necessarily comparable for equity valuation purposes.作者: prashantsahni 时间: 2012-3-30 10:48
A manager tells a research analyst, “A thorough industry analysis should use more than one approach to estimate industry variables,” and “An analyst should not compare his valuations to those of other analysts.” Which of these two statements is (are) CORRECT?
A)
Only one of these statements is accurate.
B)
Both of these statements are accurate.
C)
Neither of these statements is accurate.
The first statement is accurate. When analyzing an industry, an analyst should use different approaches and scenarios when estimating industry variables. The second statement is inaccurate. Comparing one’s own forecasts with those of other analysts can be useful for confirming the soundness of the analysis and for identifying industries that are potentially overvalued or undervalued by the consensus view.作者: prashantsahni 时间: 2012-3-30 10:49
The industry experience curve illustrates the relationship between:
A)
company age and profitability.
B)
productivity and average years of employment.
C)
cumulative output and cost per unit.
The industry experience curve shows cost per unit relative to cumulative output. Cost per unit typically decreases over time due to higher utilization rates for fixed capital, improvements in the efficiency of labor, and better product design and manufacturing methods.作者: prashantsahni 时间: 2012-3-30 10:50
Changes in population size and average age that affect industry growth and profitability are best described as:
A)
macroeconomic influences.
B)
social influences.
C)
demographic influences.
Among the external influences that affect industries, “demographic factors” refers to those that are related to the size and composition of the population.作者: prashantsahni 时间: 2012-3-30 10:51
Technological changes are most likely to result in which of the following effects? Evolving technology is likely to result in changes in:
A)
educational curriculum and the relative demand for various products.
B)
educational curriculum only.
C)
the relative demand for various products only.
If technological changes result in changes in the set of skills required of workers, this is likely to lead to changes in educational curriculum (and possibly delivery). Such changes often result in the production and demand for new or different products.作者: prashantsahni 时间: 2012-3-30 10:51
Which of the following statements about the industry life cycle is most accurate?
A)
The mature stage is followed by a shakeout stage and a decline stage.
B)
The growth stage is typically characterized by decreasing prices.
C)
Industry growth rates are highest in the embryonic stage.
Prices tend to decrease in the growth stage as firms begin to realize economies of scale in production. The stages of the industry life cycle, in order, are embryonic, growth, shakeout, mature, and decline. Industry growth is slow during the embryonic stage as firms develop products and attempt to gain customer acceptance.作者: prashantsahni 时间: 2012-3-30 10:51
Declining prices that result from the development of substitute products are most likely to characterize an industry in the:
A)
shakeout stage.
B)
decline stage.
C)
mature stage.
The decline stage of the industry life cycle is often characterized by declining prices as substitute products or global competition emerge, or as a result of decreasing demand due to societal changes.作者: prashantsahni 时间: 2012-3-30 10:52
A firm is most likely to have pricing power if:
A)
costs to exit the industry are high.
B)
its product is differentiated.
C)
its market share is high.
Firms offering products that are differentiated in terms of quality and features are more likely to have pricing power than firms that produce undifferentiated (commodity-like) products. High market share does not necessarily imply pricing power; for example, if four firms each have 25% market share, none of them are likely to have significant pricing power. High exit costs can create overcapacity in an industry and result in a high degree of price competition as firms try to maintain production volume during a period of reduced demand.作者: prashantsahni 时间: 2012-3-30 10:52
Market share stability within an industry is least likely to result from a high level of:
A)
barriers to entry.
B)
switching costs.
C)
product innovation.
Frequent introductions of new products and innovations tend to make firms’ market shares within an industry less stable. High barriers to entry into the industry and high switching costs for customers to change to a competing product both contribute to market share stability.作者: prashantsahni 时间: 2012-3-30 10:53
Which of the following conditions is most likely to indicate that barriers to entry into an industry are low?
A)
The industry has significant economies of scale.
B)
Investment capital is available at low cost.
C)
Market shares have been stable over the last two business cycles.
Readily available capital tends to make entry into an industry easier. If an industry is composed of the same firms over a long period of time, barriers to entry are likely high. Economies of scale are a barrier to entry because existing firms are likely to be producing at a lower cost per unit than a new competitor can achieve.作者: prashantsahni 时间: 2012-3-30 10:53
Pricing power for the firms in an industry is most likely to result from low:
A)
levels of capacity.
B)
barriers to entry.
C)
industry concentration.
Low capacity is associated with pricing power because it increases the likelihood that supply in the short run will be less than demand at current prices. Low barriers to entry and low industry concentration (a fragmented market) typically suggest firms have little pricing power.作者: prashantsahni 时间: 2012-3-30 10:54
Economic profits are most likely to be earned by firms in an industry that is characterized by:
A)
low threat of substitute products and high rivalry among existing competitors.
B)
high barriers to entry and low bargaining power of buyers.
C)
high bargaining power of suppliers and low threat of new entrants.
High barriers to entry (low threat of new entrants) and low bargaining power of suppliers both increase the potential for economic profits within an industry. The five forces that shape industry competition are rivalry among existing competitors, threat of new entrants, threat of substitute products, bargaining power of buyers, and bargaining power of suppliers. The stronger any of these forces are within an industry, the less potential that industry has to generate (or continue to earn) economic profits.作者: prashantsahni 时间: 2012-3-30 10:54
The competitive forces identified by Michael Porter include:
A)
threat of substitute products and rivalry among suppliers.
B)
rivalry among existing competitors and bargaining power of buyers.
C)
bargaining power of existing competitors and threat of new entrants.
Porter’s five competitive forces are: (1) rivalry among existing competitors; (2) threat of new entrants; (3) threat of substitute products; (4) bargaining power of buyers; (5) bargaining power of suppliers.作者: prashantsahni 时间: 2012-3-30 10:54
Which of the following industries is most likely to operate in a fragmented market?
A)
Oil services.
B)
Pharmaceuticals.
C)
Confections.
Most areas of the oil services industry are characterized by many small competitors. The confections and pharmaceutical industries each have a small number of very large firms.作者: prashantsahni 时间: 2012-3-30 10:55
An aggressive price reduction to gain market share is most likely to be associated with a:
A)
cost leadership strategy.
B)
product differentiation strategy.
C)
service differentiation strategy.
Michael Porter identified two competitive strategies: cost leadership and product or service differentiation. A firm that uses a cost leadership or low-cost strategy seeks to have low production costs that will enable it to offer lower prices than its competitors to protect or gain market share. A product or service differentiation strategy seeks to gain a price premium for its products by making them distinctive to the consumer.
