Business Analysis And Valuation

Module 1: Framework for Business

Analysis and Valuation
 What is Business?

• An entity for profit (commercial) or not for profit (non-commercial: not for profit or
charitable).

• Business entities are formed to produce or sell a product or services.

• Run by people or need other resources as well such as materials, finance etc.

• Achieve a desired output.

• Output for public or private benefits.

 What is Business?

These business entities exists with a certain ‘Vision-Goals-Strategies’.

Vision: Future road map

Goals: very specific, attainable and time bound.

Strategies: are designed to achieve the goals.

 What is Business?

Vision: Tesla Motors:

“ To create the most compelling car company of the 21s century by driving the world’s
transition to electric vehicles.”
-Most compelling
-Car company
21st Century
The world’s transition to electric vehicles

Vision : Amazon
“ To be earth’s most customer centric company where customers can find and discover
anything they might want to buy online”

-Global Reach
-Customer prioritization
-Anything they might want to buy online.

Vision: P&G
“Be & Be recognized as the best consumer products and service company in the world”
-Be & Be Recognized
-Best consumer products & services
-Company in the world
 What is Business?

Mission: Google: Organizing the world’s information

Mission Tesla Motors: To accelerate the world’s transition to sustainable transport

 Business Ecosystems
Business Ecosystem consist of following components:
 Business Ecosystems

• If there is any disruption in business ecosystem it results in :

a) problems or b) opportunity
for an organization.

• This disruption causes mis-alignment in vision-goal-strategy chain.

• Organization need solution to help them to solve the problem or exploit opportunity.
 Why Business analysis

What is Solution?

Key components of a solution includes:

• Organization restructuring
• Business process reengineering
• Business process improvement initiative
• Information technology to support business
 Why Business analysis

Success of a solution lies in

• Understanding the ‘Current –State’ of an organization such as pain-points, bottleneck,

issues etc.

• Mapping out the ‘Future-State’ of an organization.

• Eliciting, analyzing, documenting and validating the business, system/technical

requirements

• Re-aligning the organization’s ‘Vision-Goal-Strategy’.

 Why Business analysis
Domains of Business Analysis
Why Business analysis
 What is Business Analysis?

• The BA is the linchpin of the company and is focused on solving all sorts of
business problems, whether through IT or other means.

• Business Analysis is similar to need analysis especially in the sense that it is used to
determine the needs (requirements) of the business, and is centred on
understanding the issues and opportunities faced by the business with the
objective of finding resolutions, defining approaches to resolving issues and
exploiting opportunities.

• According to the International Institute of Business Analysis (IIBA), Business

Analysis is “the practice of enabling change in an organizational context, by
defining needs and recommending solutions that deliver value to stakeholders.”
 Business Analysis

Business analysis is the evaluation of a company’s prospects & risks

for the purpose of making business decision

Business Decision Makers include:

•Equity Investors
•Creditors
•Managers
•Merger and Acquisition Analysis
•External Auditors
•Directors
•Regulators
•Employees and Unions
 3 C’s of Business Analysis

• Code (Accounting- language of business)

• Conduct (Strategic certificate which defines the path way of these businesses).

• Climate (Environmental factors)

 Steps of Business Analysis

• Strategic Analysis: identify key profit drivers and business risks and assess a firm’s
profit potential at a qualitative level. It helps to evaluate if current profitability is
sustainable.

• Accounting Analysis: evaluate the degree to which a firm’s accounting captures the
underlying reality. Evaluate the firm’s accounting policies and estimate. Undo the
accounting distortions by recasting accounting numbers to create unbiased accounting
data.

• Financial Analysis: evaluate current and past performance and assess its sustainability
by doing ratio analysis and cash flow analysis. Ratio analysis evaluates market
performance and financial policies while cash flow assesses a firm’s liquidity and
financial flexibility.

• Prospective analysis: forecasting a firm’s value using financial statements forecasting

and valuation.
 Business analysis of a firm before investing in it

Benjamin Graham once quoted: “The individual investor should act consistently as an
investor and not as a speculator”

• Understanding the Business Model of the Company

• Industry Analysis
• Competitive Advantage
• Management
• Corporate Governance (leadership, Accountability, Fairness, Compliance)
“Good corporate governance is about maximizing shareholder value on a sustainable
basis while ensuring fairness to all stakeholders: customers, vendor partners,
investors, employees, government and society.” – Mr. N R Narayan Murthy, Co-
Founder Infosys.
• Analyse Company’s annual and quarterly report
• Evaluate Balance Sheet
• Review the financial performance through ratio Analysis
(Benjamin Graham said “ Buy not on optimism, but on arithmetic”
• Quality of Earnings
 Business
Environment &
Strategy Analysis

Industry Strategy
Analysis Analysis

Financial
Analysis

Analysis
Accounting of Sources Prospective
Analysis &Uses of Risk Analysis
Profitability
Funds Analysis
Analysis

Cost of Capital Estimate Intrinsic Value

 Business Strategy Analysis

The process of conducting research on the business environment within

which an organization operates and on the organization itself, in order to
formulate strategy.
The purpose of Business Strategy Analysis identify key profit drives and
business risks. Assess company’s profit potential at a qualitative level.

Why Use it?

To take advantage of the path of least resistance to achieve your goal.

When to use it?

When you are planning to make a change in your organization, and you need
to determine the best path to take.

Tools of Strategic Analysis

A number of tools are used in the process of strategic analysis including PEST,
SWOT analysis, Michael Porter's five force mode, SPACE, Blind spot analysis,
value chain analysis etc.
 Business Strategy Analysis

Strategy Analysis involves

• Industry analysis
• Competitive strategy analysis
• Corporate strategy analysis