Discuss the contention that differences in the performance of various firms within an industry limit the usefulness of industry analysis.
Industry analysis refers to a method of measuring the performance of the company, with the other firms performing the same manner of operations. It helps in setting a benchmark of performance based on which other firms improve their results.
Answer and Explanation:
The industry consists of various firms engaged in the same kind of operations. The industrial performance is obtained through the consolidated performance of companies. But a favorable performance is determined through setting a benchmark; the investors do not need to analyze those firms which are achieving the benchmark because measuring industrial result is revealing the position of such company. In contrast, the companies which are not performing as per set standards of the industry then the investor requires to perform a separate investigation of such a firm before making an investment decision. Hence the differences in performance reduce the effectiveness of industrial analysis.
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from Business Analysis TrainingChapter 4 / Lesson 6