Internal and SWOT Analysis Economic

Internal and SWOT analysis

Economic value added is net profit, or it could also be framed in terms of cash flow. The cost of doing business simply the business' cost structure. Net profit is the earnings that go beyond the cost of doing business, which is the same definition of economic value added.

The best way to learn about a company's resources is to go straight to the source. The company will proudly tell you about its resources on its website, in its annual report and in its corporate communications. Tangible resources are typically identified in the annual report when the assets are broken down. These are also discussed during analyst conference calls and sometimes also in press releases and other corporate communications. Financial resources are spelled out explicitly in the annual report and in the quarterly 10-Q forms that are filed with the SEC. It may be possible that further details not included in these forms (which contain all details that must be made public by law) can be found from analyst reports on the companies. Analyst reports typically cost money, which makes them impractical for the student but they are a good source of information nonetheless. Technical resources can be trickier to discern, as that information is often proprietary in nature. Press releases, media reports and trade magazines are the best source of information about a company's technical resources. The best media source is usually the one from the city where the company is headquartered, as their business writers tend to produce more articles and have tighter connections to key players in the company. The Dallas Morning News is a good newspaper source for Southwest Airlines information, for example. Some industry magazines, such as Air Transport World, also have websites.

Intangible resources are outlined in the annual report in the notes on the balance sheet. Goodwill is not a resource -- it is the means of accounting for the premium paid in the acquisition over a company over its fair market value. If by "goodwill" you mean the brand value and the value of relationships, those are typically listed on the balance sheet as "other intangible assets" and broken down in a separate statement in the annual report (for Southwest Airlines this is only the landing rights that they hold). Determining intellectual resources is mainly indirect. Articles in the business press may discuss the contributions of key executives. On the broader organizational level, intellectual resources can be inferred through a number of proxies, which are accurate to varying degrees. Examples could be new products introduced, average salary and yes, EVA. For distinctive capabilities, business press, academic journals and personal interviews can all be sources of data for each. One last piece of data often overlooked is the credit or bond rating of the company, or even its cost of capital if that can be determined. The market is assumed to have perfect information to the price is assumed to reflect all publicly available information. As such, credit ratings or bond yields provide insight into how the market views this company, based on all publicly available information.

There is no guarantee that any source is going to have the information you seek. Indeed, once could waste a lot of time, especially if one is determined to hunt down unique sources of information for each competency and capability. Most of this information can be found from the top 2-3 sources; other sources may not be entirely superfluous but the researcher must understand that there is a point of diminishing returns with respect to most sources in the library or Internet. A search of an academic database can take hours to yield two useful articles, neither of which sheds any more light than what can be found on the first page of a Google search. It is important that the researcher is able to prioritize sources -- the quality of the references is more important than the number of references, assuming the objective is to learn something.

Most sources listed offer at least the potential of usefulness in an internal analysis. Company sources may be the most forthcoming with respect to resources and competencies, but they are also the most biased. Trade magazines, newspaper articles, analyst reports and academic journals are far more objective in nature, which can lend balance to the analysis. Inference is also critical. The financial statements, for example, are highly detailed and highly nuanced by they contain a fantastic amount of information about the company. Remember that annual reports must contain a substantial amount of information by law -- enough information for investors to make a rational decision about the company.