Investment and SWOT Analysis
SWOT analysis is a strategic planning method devised in order to evaluate the Strengths, Weaknesses, Opportunities and Threats involved in a project, company or business venture. When it comes to investors, they are concerned with the returns on their investments. SWOT analysis is used to show potential investors the value of the venture and thus their investment.
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Definition
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SWOT analyzes Strengths, Weaknesses, Opportunities and Threats to help investors make better business decisions. This study contains vital information to appeal to, and even dissuade, potential investors from a specific project or business venture. SWOT analysis was devised by Albert Humphrey who, while working at the Stanford Research Institute, produced a method for planning, then called SOFT analysis (Satisfactory, Opportunity, Fault and Threat). This was further developed into what we know today as SWOT analysis.
Features
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The following are the components and the various corresponding factors taken into account during a SWOT analysis. When looking at strengths, relative size of the industry, balance sheet strength, cash flows, brand/product perception and areas of expertise are the relevant factors. In weaknesses, factors such as a negative balance sheet, poor public perception, problems in management and competitors' advantages must be considered. Factors such as growth prospects, technological advancements and potential investments are relevant for the opportunities component whereas internal problems, financial constraints, cash flow issues, relative position of the company in industry and threatening technological advancements are significant components in the threats category.
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Significance
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SWOT analysis is a key component of effective strategic planning. It subjectively evaluates the impact of internal and external factors in achieving a business objective. The internal processes of a company are considered as its strengths and weaknesses while the external factors affecting the business of a company are considered opportunities and threats. Through SWOT analysis, one hopes to develop a strategic perspective about the standing of a particular project in the industry landscape.
Considerations
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A SWOT analysis is always subjective and concise; thus, it has limited value in ensuring investors that they are making strategically sound and precise business decisions. Efforts should be made to make the analysis as detailed as possible regarding the internal status of the business and the future growth one may expect in the future.
Misconceptions
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It is not advisable for investors to solely base their decision on a SWOT analysis. The agenda of a SWOT analysis is to prepare a snapshot of the current situation of the company as well as its future prospects. An effectively pursued SWOT analysis can provide companies invaluable insight into their industry, helping them to understand the tactics they need to employ to gain a competitive advantage. Once pursued, a SWOT analysis should be regularly revisited to evaluate the impact of current strategies in a technologically fast-paced economy.
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