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Industry structure
Concentration, margin dispersion and profit capture across the covered participants — the figures that evidence an industry's structure.
How to read this
Structure determines how the value an industry creates gets divided, and it sets profitability over the medium and long run, where the business cycle only moves the short run. The figures are the consistency check on a structural read, not a substitute for one.
Where returns sit
The industry's return on invested capital, placed against Porter's published distribution of US industry returns.
How to read this
Return on invested capital is the measure strategy uses, because margins and profit growth both ignore the capital a business needs to compete. Industries are placed rather than scored — the point is to understand what drives the number, not to grade it.
The profit pool
Each firm's share of industry revenue (width) against its operating margin (height), so the area is the profit it takes.
How to read this
Revenue and profit rarely concentrate in the same place, and where they diverge is where the strategy question lives.
Competitive position
Where this company sits among its peers on return on capital, year by year, and how often it stayed above the median.
How to read this
A single good year is not an advantage; holding a position across a cycle is. Read the persistence figure before the rank.
What the return rests on
Pre-tax return on equity split into margin, asset turnover and leverage.
How to read this
Pre-tax so that differing tax rates do not muddy a comparison between rivals. Two companies can post near-identical returns by opposite routes — one on a thin margin and a fast asset cycle, the other on a fat margin and a slow one. They are completely different businesses, and the headline number hides it.
Growth: the industry's, or its own?
Revenue growth split into the part the industry provided and the part the company took from rivals.
How to read this
Reported growth cannot distinguish a firm riding a rising industry from one taking share in a falling one; splitting it does. Growth is also not evidence of an attractive industry — some of the fastest-growing have been among the least profitable.
Five forces — the evidence in the numbers
The financial evidence for each of the five forces, with the questions the numbers cannot answer named beneath each force.
How to read this
The forces are tied to the income statements and balance sheets of an industry's participants: structure defines the gap between revenues and costs, and financial data can evidence some of that gap. It cannot observe buyer concentration, switching costs or entry barriers directly, so those are named as open questions rather than quietly guessed at.
How hard is this to copy?
How the odds of a rival copying a position fall as the number of interlocked activities rises.
How to read this
A rival's chance of matching any single activity is usually below one, and the probabilities compound across an interlocked system. Positions built on systems of activities are far more durable than those built on any one of them.
Executive summary
The company's position, capital deployment and health, read off its filings and its peer set.
How to read this
A filing never states a strategy in so many words, but it records every capital decision behind one and reports the result. Nothing in this section is an estimate.
Where the money actually goes
Each bar is a year's operating cash flow and how it was spent.
How to read this
Stated priorities are not observable in a filing; funded ones are. The total can pass 100% — a company is allowed to outspend what it earns — so the axis is not clamped and the shortfall is named.
Objectives against the peer set
Each meter places a financial result against the same industry peers used throughout.
How to read this
There are no published corporate targets in a filing, so these are not the company's own objectives. They are the measurable half of the question.
Health index
Valuation
What the equity and the whole business are priced at, from the filings and the feed, against the company's own decade and a peer set chosen for it.
How to read this
Enterprise value is market value plus debt and minority interest less cash and securities, so a company with net cash is worth less than its equity. Multiples come two ways: from the filings on the trailing twelve months, and from the market-data feed; the peers' multiples are the feed's. The course's evidence (Liu, Nissim and Thomas) ranks forward earnings as the most reliable driver and sales as the least, and prefers the harmonic mean of a peer set to its average. The last two blocks turn the price around — the growth it assumes at a CAPM cost of equity — and set the return on invested capital against the cost of capital.
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Stock performance
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Financial performance and health
Growth, margins, cash generation and the return earned on the capital behind them — each against the same peer set, over the full window the filings support.
Revenue by segment
Geographic mix
What the company says, against what it did
Consensus against delivery, quarter by quarter; the next report and what the street expects of it; and management's own outlook and adjusted figures, quoted from the latest earnings release.
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Market and competitive position
Share of revenue and profit among the covered peers, and the comp sheet for a peer set chosen for this company by the course rule.
How to read this
Share here is of the covered listed peers, not of a served market: private companies, foreign entrants and smaller rivals sit outside this panel, so every share below is an upper bound. The comp sheet does not use the industry cohort; it uses Alford's rule — the same industry by SIC, widened until at least six other firms, then the closest on total assets and return on equity — because that selection priced stocks most accurately in the course's evidence. The footer rows aggregate the peers by median and by harmonic mean, negatives excluded.
Customer and product
What the filings carry about customers: contracted revenue, product mix and backlog.
How to read this
This is the block a filing supports least. Acquisition cost, lifetime value, churn and satisfaction are internal measures that no company is required to publish, and none of them are invented here. What a filing does carry is what customers have already committed to pay.
Product mix
Operational execution
How hard the asset base works, how much is put back into the product, and how long cash is tied up between paying for inputs and being paid for output.
Risk
Financial risk measured from the statements, the company's own risk register, and the macro backdrop it operates in.
How to read this
Financial risk is measurable from the statements and is measured here. Strategic, operational and regulatory risk are not — a severity-and-likelihood grid drawn from financial data alone would be a chart of an opinion, so what cannot be evidenced is listed rather than plotted.
The company's own risk register
The titles of the material risks the company names in Item 1A of its latest filing, in its own words.
How to read this
A 10-K must name the material risks to the business in Item 1A, and filers head that section with a title per risk. No scoring or severity is added, because the filing carries none. Quarterly updates, when material, arrive in the 10-Q's own Item 1A.
Macro backdrop
Business-cycle indicators
Leading, coincident and lagging indicators, each with its history and cycle phase.
How to read this
Leading indicators move before the economy does, coincident ones move with it, and lagging ones confirm where it has been. Read them together: a strong lagging picture with deteriorating leading indicators is late cycle, and the reverse is a recovery.
The strategist's note
Written by the desk's research model from the figures on this page — and only those figures. The sections above state what the numbers are; this note argues what they mean together and what would change the verdict.
Writing the note from the figures above…