NISM Certifications · NISM-Series-XV: Research Analyst · Company Analysis - Business and Governance
Which of the following is a typical analytical use of Porter's five forces framework in company business analysis?
Porter's five forces is used to assess the competitive intensity and long-term profit potential of an industry. It examines rivalry, new entrants, substitutes, buyer power and supplier power, helping an analyst judge how well a company can sustain its margins.
- AComputing the weighted average cost of capital
- BAssessing the competitive intensity and profit potential of the industry in which the company operatesCorrect
- CEstimating the technical support level of a stock
- DDetermining the company's tax liability
Explanation
Porter's five forces (rivalry, threat of new entrants, substitutes, buyer power and supplier power) evaluates industry structure and profit potential. It does not compute cost of capital, technical levels or tax.
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