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Business Drivers of Industries for Trium
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Bio Overview Drivers Help Materials Grading Premodule Schedule

Overview

This course provides a comprehensive yet quickly usable framework to grasp the key financial characteristics of a business. I have developed this framework to analyze the key following key value drivers:

The Six Pack

Size

How do we measure size? Market cap, or sales, assets, or number of employees? What are the merits or demerits of each metric? Is the industry fragmented or do a few large firms dominate it? What are the reasons for such patterns? For example, how do economies of scale and scope affect the distribution of sizes? What role do network externalities play in industry consolidation? How do the bigger firms differ from the smaller firms in the industry? How does size affect risk and return?

Growth

What are the drivers of growth? How does growth affect the business model of a company? How does growth affect the financing of a company? What do we know about the rate at which an innovation is adopted by a wider market?

Margins

What are the major components of costs as a percentage of sales? What are the drivers of margins? For example, is the margin driven by pricing power, conversion efficiency, or purchasing power? Is the company primarily driven by the success of its R&D, the efficiency of its production, or the successful marketing of its products to customers? How do the margins change as a company matures? How do companies offset low margins with high volumes, and vice versa? How does that affect its hiring and management practices?

Volume or net asset turnover

How asset intensive is the business model? Does it create barriers to entry? What risks does it create? How does it affect the financing needs of the companies in that industry? Are the revenue-generating assets listed on the balance sheet?

Business risk

How does the extent of fixed costs, i.e., operating leverage, affect the business model of a company? Does it lead to ruinous price competition in a down cycle? Which costs are fixed in the short-run vs. the long run? How does a company mitigate the risks arising from fixed costs?


Is the business cyclical? What do we know about business cycles? What risks do they create? How does fiscal and budgetary policy change in response to business cycles? How does that affect the business we are trying to understand? Is its business model sustainable enough to survive the downturn of a business cycle? Can and how does a company mitigate the risk of down cycles? How does cyclicality affect the financing of a company?


Is the business regulated? Why? What aspects of regulation must it manage in order to be successful? How does that affect risk?

Financial risk

How much financial leverage do companies in the industry have? Is there a wide variation? How have the business risk, industry cycle, corporate performance, and the financial policy affected the leverage? What types of debt do the companies have? How does leverage change over the life cycle of a company? Why do industries differ in their borrowing costs? What is the company’s credit rating? How have the business risk and the extent of leverage affected the borrowing costs? How has debt structuring affected the interest rate?

 

The course will not cover financial institutions such as banks and insurance companies.

Disclaimers

Help and Office

Materials

Participation

Grading

Pre-module Work

Grubhub Project

Class Schedule

Session # Industry Materials
1. Tuesday, March 7: 8:30 AM to 12:30 PM
  • Size
  • Growth
  • Margins
  • Net operating asset intensity
  • Business risk
  • Financial risk
  • Tiffany

Trium-Prework-Packet.pdf in the folder 01-Prework-Handout-and-Supporting-Spreadsheets. Read the supporting spreadsheets with the pdf.

 

Tiffany: In the folder 03-Prework-projects-to-read

2. Thursday, March 9: 1:45 PM to 5:45 PM
  • Amazon
  • Starbucks
  • Simon Property Group

In the folder 03-Prework-projects-to-read

In the folder 03-Prework-projects-to-read

04-Additional-projects-for-class

3. Friday, March 10: 8:30 AM to 12:30 PM
  • Continental Resources
  • Vestas
  • First Solar

In the folder 04-Additional-projects-for-class

In the folder 04-Additional-projects-for-class

In the folder 04-Additional-projects-for-class

4. Saturday, March 11: 8:30 AM to 12:30 PM
  • Pfizer
  • Illumina
  • Google

In the folder 04-Additional-projects-for-class

In the folder 04-Additional-projects-for-class

In the folder 03-Prework-projects-to-read