Using SWOT Analysis To Assess Your Investments

SWOT, which stands for Strengths, Weaknesses, Opportunities, and Threats is a business management tool used by companies to analyze a business and specifically to examine competition in the business

SWOT, which stands for Strengths, Weaknesses, Opportunities, and Threats is a business management tool used by companies to analyze a business and specifically to examine competition in the business. This analysis covers both the internal and the external factors specific to a company’s peculiarities and it is solely used to assess the state of the company’s competitive advantage or disadvantage.

It can also be used to assess separate parts of a business like a new product, a new division, a separate industry, and so on. It also assesses the internal and external risk of the business as well as its potential.

When split into a quadrant of 4, symbolizing the different individual parts of the assessment, “Strength and Weakness” are on the upper part of the quadrant. Both S and W in the analysis are used to assess the company internally.

The strengths it has are peculiar to the business itself and its weaknesses are also based on internal factors. However, the bottom part of the quadrant “Opportunities and Threats” represent external factors.

In other words, how external things that are not within the company’s control like its environment affects it. Just as SWOT Analysis is used in business, it can also be used when investing – especially for the long term.

A typical long term investment has all the peculiarities of running a business. You invest a certain amount in capital, gauge your risk points, and just as you have different parts to play in the success of the investment or otherwise, there are other external factors that could dissuade you.

As such, carrying out a SWOT Analysis would help put your investment in perspective. Your SWOT analysis, thus, covers both the internal features like a company’s corporate structure, and also its commercial environment. Below are some of the specific things to put when assessing an investment.

Strengths

What does the company pride itself with? What makes it better than others in the same line with it? What are the company’s financial books like? How is its rate of customer satisfaction?

What about the goodwill of the company? Does it pay good dividends based on its historical performance? You can draft specific things the company is known for and list all the internal advantages it has.

Weaknesses

Every business has its dark sides. These dark sides are potential areas in which the company may fail in based on its own peculiarities and when it comes to investing your funds in it, assessing its weaknesses to see its potential downfall would tell you the degree of risk involved in it.

Is the company heavily leveraged? Does it remain in the past in terms of refusing to innovate? Has its share price been falling? Is its management bad based on recent information? A list of this is key for any investment company of your choice.

Opportunities

Opportunities are external advantages the business may enjoy. It shows what the opportunities for growth are, events in the political landscape that might propel it towards its goals, and how the characteristics of the industry itself would also assist the growth of the business.

The company might be going through a merger or acquisition process that is sure to send its value on an upward movement. Write out a list of the opportunities available to the business and see if its future outlook is exciting.

Threats

Finally, are there issues that could impact the business negatively. Is the company losing market share to the increasing competition? Does it have unsettled litigation issues? Is there a new governmental policy that hinders its success? For example, an importation ban on a company that depends on imports is a bad sign.

These tools would help you properly assess the position of your investment or potential investment. It would also give you a full view of what to expect from the investment.

Written by Lawretta Egba.