One Size Does Not Fit All Essay

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One Size Does NOT Fit All: Industry Analysis as Haute Couture (2014 Update) by WARREN D. MILLER CFA, ASA, CPA ABSTRACT Ten papers published in top-tier refereed academic journals since 1991 have found that industry-level factors account for 16.7% of the variation in companies’ rates of return. Hence, industry analysis matters. Besides a new six-dimensional framework for conducting such analysis, this session will introduce ‘strategic groups,’ a vital concept for those analyzing smaller companies that do not compete industry-wide. The presentation will also demonstrate why published industry risk premiums are inappropriate for the competitive domains that most non-public companies face. Doing one’s own external risk assessment, rather than buying something ‘canned’ off-the-shelf, results in greater value for clients, higher-quality deliverables, enhanced differentiation, and, over time, higher margins. UPDATED FROM PRESENTATION AT: The 26th Annual Advanced Business Valuation Conference AMERICAN SOCIETY OF APPRAISERS Sheraton San Diego Hotel & Marina San Diego, California October 30, 2007 © 2007-14 Beckmill Research, LLC Lexington, Virginia All Rights Reserved © 2007-2014 Defining the Competitive Domain V aluation professionals often give short shrift—if we give any shrift at all—to industry analysis. But before we can assess industry risk, we must define what we want to analyze. This arises because the unit of analysis in external risk is not the subject company; it is the subject company’s competitive domain. That means that all firms within a given domain have the same external risk premiums.1 These quantify the ‘OT’ in so-called SWOT Analysis (Strengths, Weaknesses, Opportunities, Threats). Published research, which we’ll get to later in this paper, shows that, together, industry- and company-level risk factors account for over 67

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