2024 – 4 Evaluate your industry in terms of the five factors that determine an industry s intensity of competition

4. Evaluate your industry in terms of the five factors that determine an industry’s intensity of
competition. Based on this analysis, what are your expectations about the industry’s profitability
in the short run (1 or 2 years) and the long run (5 to 10 years)?

5. Using Standard and Poor’s Analysts’ Handbook or another source, plot the latest 10-year
history of the operating profit margin for the S&P Industrials Index or another aggregate
market series versus an industry of your choice. Is there a positive, negative, or zero
correlation?

7. Prepare a table listing the variables that influence the earnings multiplier for your chosen
industry and the market index series for the most recent 10 years.
a. Do the average dividend-payout ratios for your industry and the market index differ?
How should the dividend payout influence the difference between the multipliers?
b. Based on the fundamental factors, would you expect the risk for this industry to differ
from that for the market? In what direction, and why? Calculate the industry beta
using monthly data for five years. Based on the fundamental factors and the computed
systematic risk, how does this industry’s risk compare to the market? What effect will
this difference in risk have on the industry multiplier relative to the market multiplier?
c. Analyze and discuss the different components of growth (retention rate, total asset
turnover, total assets/equity, and profit margin) for your chosen industry and a market
index during the most recent 10 years. Based on this analysis, how would you expect
the growth rate for your industry to compare with the growth rate for the market index?
How would this difference in expected growth affect the multiplier?