Business Analyst's Toolkit: Key to Efficient Investing
Created on 09 Dec 2023
Wraps up in 5 Min
Read by 1.5k people
Updated on 04 Jan 2024
As per LinkedIn statistics, around 98 lakh people from financial backgrounds have added “business analysis” as a skill in their portfolio. After all, being a business analyst is considered a crucial skill in the investing world.
This particular skill could be useful for you, dear investor, in making sound decisions. You see, every investment firm has one business analyst or more to overview a company's business model. This helps the firm to decide if it is suitable to invest in that company or not.
You can surpass these people by following a basic manual. The procedure to do so is not as complicated as one might think.
In this article, we will learn how areas like SWOT Analysis, macroeconomic indicators, and technological landscape, the foundation of business intelligence, help analyse a business.
To accomplish this, all you have to do is think from the point of view of a business analyst. Doing so would prove to be the key ingredient to the ultimate recipe for successful investing. 😋
What is the Main Role of a Business Analyst?
Business Analysts (BAs) rely on a multifaceted approach when evaluating companies. Their analysis goes beyond just financial metrics and dives into various aspects that influence a company's health and future potential.
While I was looking for a prospective stock to add to my portfolio recently, I was offered multiple suggestions. The most common statement behind all the suggestions was that “the business of this particular stock is very good”. This made me wonder how analysts conclude that a particular business is better than others.
The answer is that a BA examines a business from three fronts:
- Internal Factors
- External Factors
- Qualitative Factors
Giving much-needed insight into a business, SWOT Analysis is part of the internal factors observed or analysed by the BA. If you have been a part of the investing world for over a few months, you might have heard this term. 👇
Let’s see what these four factors represent:
This includes the company's Unique Selling Proposition (USP), competitive advantages, intellectual property, brand reputation, human resources, and operational efficiency.
BAs assess how these strengths contribute to the company's success & sustainability and also highlight the internal strengths hidden from plain sight. 💪
Areas like operational inefficiencies, talent gaps, outdated technology, or weak financial management are part of this section that need improvement.
BAs identify these internal limitations that hinder the company's growth or performance. These limitations could be something investors wish to steer clear of, like debt. 😰
BAs analyse market trends, emerging technologies, and customer needs to identify potential growth areas.
They assess the company's ability to capitalise on these opportunities through innovation, diversification, or strategic partnerships. It will help you predict better investing opportunities for the coming days. 🤌
BAs scan the environment for potential risks, such as new competitors, regulatory changes, economic downturns, or technological disruptions.
They evaluate the company's preparedness and contingency plans to mitigate these threats. This pointer will help an investor avoid risky companies that could be dangerous to their portfolio. ❌
Overall factors which are available for general scrutiny often get neglected while analysing a business. They are a part of the external factors and are described as follows:
BAs study the industry size, growth rate, competitive landscape, and customer segmentation. They assess the company's market share, competitive positioning, and brand awareness within the industry.
After all, the market a business caters to directly affects it profoundly. 🧐
Economic factors like inflation, interest rates, currency fluctuations, and consumer spending patterns are analysed by BAs.
They assess how these trends might impact the company's revenue, costs, and overall profitability. 💸
BAs evaluate the impact of emerging technologies on the company and its industry. They assess the company's ability to adopt new technologies and stay ahead of the curve.
A good example is the adoption of Artificial Intelligence (AI) by businesses from varying industries. 💻
BAs study relevant regulations, legal frameworks, and compliance requirements. They assess the company's adherence to these rules and potential risks related to non-compliance.
ESG compliance is a crucial part of this sector. Many companies excel in maintaining a good ESG score. Know which are the top ones in India and how to invest in them by clicking here. 🌎
BAs also consider qualitative aspects like corporate culture, leadership, team competence, employee morale, customer satisfaction, and brand perception. These factors influence employee engagement, innovation, customer loyalty, and, ultimately, the company's long-term success.
Qualitative factors mentioned above influence the business and, in turn, a stock’s value in the market directly and indirectly. A controversy with a prominent figure, say the CEO or Founder of a company, often leads to a down-trend in stock price. 📉
Use of a Business Analyst: Do You Need Them?
The answer to this question can be found in two different POVs.
From an Investor's Perspective
The BA acts as a bridge between the company and potential investors. They translate complex business information into digestible insights, helping investors understand:
- The company's potential,
- Financial health,
- Management capabilities,
- Operational efficiency,
- Risks and compliance.
In short, a BA empowers investors to make informed, data-driven investment decisions by providing a comprehensive and objective analysis of the company. You can even say that BAs act as trusted advisors, helping minimise risks and maximise the potential for returns. 🤵♂️
From a Business Perspective:
The BA acts as a strategic partner for a business, helping them:
- Define business needs,
- Optimise processes,
- Develop effective solutions,
- Manage change effectively,
- Measure and communicate performance,
- Gain competitive advantage.
In essence, a BA acts as a catalyst for growth and efficiency. They help businesses operate smarter, achieve their goals, and ultimately thrive in the marketplace.
The Bottom Line
Keeping yourself in a BA's shoes and analysing a business from the above-mentioned factors is the model way to efficient investing. But, if you find studying parameters like SWOT and macroeconomic indicators difficult, then you can look for an alternative.
Recipe’s Research Reports section offers insights into varying factors such as financial health, debt sustainability, and business model. By going through these short and crisp reports, you can understand a business without breaking a sweat.
So, what do you prefer? If you wish to overview a company like BAs, what more factors should be included? Let us know in the comment section below.
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