Which are the Critical Business Drivers / Success factors of firms?
Well, each industry will have a specific set of factors that affects its profitability & its growth prospects. These few indicative examples which could help you in how to set your focus on what matters most.
- Retail Sector, you must closely monitor footfalls & same store sales (SSS)
- Banking, works on Net Interest Income (NII) or Net Interest Margin (NIM)
- Telecom, its always Average Revenue Per User (ARPU)
- Hotels, focus is on Average Room Tariffs & Occupancy levels.
- On-line businesses, they are most dependent on internet penetration & changing habits of people on shopping.
- Currency Market – Its critical for export oriented companies & import oriented oil companies. (Depreciating rupee against an appreciating Dollar – Will make the software companies most happy as it is export oriented, while Oil companies that relies on import will have to take the brunt – as it needs to pay in dollars for procuring Oil)
So this is exactly a reason – why i tell to all my clients – know/understand the industry you are investing. Buying a company’s share without having knowledge of these critical drivers could mean purchasing a potential loser. By judging a company based on these parameters – by looking at the annual reports – you can know where the company is headed & if you see a need to accumulate more stocks of this company or may be even sell it if you see slicing & dicing of quality.
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