This document outlines key factors to consider when conducting an industry analysis. It discusses how industries can be classified using Standard Industrial Classification (SIC) codes which group industries by a four-digit code. Industries are also classified based on how they react to economic cycles, being categorized as growth, cyclical, defensive, or cyclical growth. The document then lists several specific factors that are important to analyze for any given industry, including past sales and earnings performance, permanence, government attitude, labor conditions, and competitive conditions within the industry.

1. Presented by:
Azri Fikri Bin Aziz (2010758277)
Intan Mazeadiba Bt Mazlan (2011407842)
Nor Azliza Bt Ali (2011452624)

2. • An industry analysis is a business function completed
by business owners and other individuals to assess
the current business environment. This analysis helps
businesses understand various economic pieces of the
marketplace and how these various pieces may be
used to gain a competitive advantage. Although
business owners may conduct an industry analysis
according to their specific needs, a few basic
standards exist for conducting this important business
function.

3. • It is difficult in practice to decide the group between
one industry and another. A useful way to define
industry groups is given by Standard Industrial
Classification or SIC codes.
• The Standard Industrial Classification (SIC) is a system
for classifying industries by a four-digit code. The SIC
codes can be grouped into progressively broader
industry classifications: industry group, major group,
and division. The first 3 digits of the SIC code indicate
the industry group, and the first two digits indicate
the major group.

4. • Another way of classifying industries is in a cyclical
framework, that is how they react to upswings and
downswings in the economy. The general
classifications in the framework are growth, cyclical,
defensive and cyclical growth.
 Growth industries are generally characterized by
expectations of abnormally high rates of expansion
in earnings, often independent of the business cycle.
Frequently this type of situation is associated with a
major change in the state of technology or an
innovative way of doing or selling something.

5.  Cyclical industries are considered to be those most
likely to benefit from a period of economic prosperity
and most likely to suffer from a period of economic
recession.
 Defensive industries are those, such as the food
processing industry, hurt least in periods of economic
downswing. Defensive industries often contains firms
whose securities an investor might hold for income.
Defensive stocks might even be considered counter
cyclical , because their earnings might very well
expand while earnings of cyclical stocks are
declining.

6. • Past sales and earnings performance
 One of the most effective steps in forecasting is
assessing the historical performance of the industry in
question. Certainly, two factors with a central role in
the ultimate success of any security investment are
sales and earnings. Therefore in order to gain a
perspective from which to forecast, it is helpful to
look at the historical performance of sales and
earnings.

7. • Permanence
 Another important factor is the relative permanence
of the industry. Permanence is a phenomenon related
to the products and technology of the industry.
 If the analyst feels that the need for this particular
industry will vanish in an extremely short period of
time, it would seem foolish to invest funds in the
industry. Sometimes an industry fades from the scene
because of a replacement industry that eliminates or
diminishes the need for the original industry.

8. • The attitude of government toward the
industry
 The attitude of the government towards an industry
has a significant impact on its prospects. The
government may encourage the growth of certain
industries and can assist such industries through
favorable legislation.
 As government becomes more influential in attempting
to regulate business and to advocate consumer
protection, the permanence of the industry might well
be infected – not in that government interference will
necessarily drive it out of business, but in that profit of
the industry can be substantially lessened. Sometimes
an industry declines in importance because of legal
restrictions that are places upon it.

9. • Labor conditions
 As unions grow in power in our economy, the state of
labor conditions in the industry under analysis
becomes ever more important. That is, if we are
dealing with a very labor-intensive production
process or a very mechanized capital-intensive
process where labor performs crucial operations, the
possibility of a strike looms as an important factor to
be reckoned with.

10. • Competitive conditions
 Another significant factor to be considered in industry
analysis is the competitive conditions in the industry.
The level of competition among various companies in
an industry is determined by certain competitive
forces. These competitive forces are barriers to entry,
the threat of substitution, bargaining power of the
buyers, bargaining power of suppliers and the rivalry
among competitors.

11. THE END