The Competitive Edge of the Company

Major industries in India are composed of hundreds of individual companies. The in the information technology industry even though the number of companies is large, few companies like Tata InfoTech, Satyam computers, Infosys, NIIT etc., control the major market share. Like-wise in all industries, some companies rise to the position of eminence and dominance. The large companies are successful in meeting the competition. Once the companies obtain the leadership position in the market, they seldom lose it. Over the time they would have proved their ability to withstand competition and to have a sizeable share in the market. The competitiveness of the company can be studied with the help of

The market share

The growth of annual sales

The stability of annual sales

The Market Share

The market share of the annual sales helps to determine a company’s relative competitive position within the industry. If the market share is high, the company would be able to meet the terms of sales in 1997. While analyzing the market share, the size of the company also should be considered because the smaller companies may find it difficult to survive in the future. The leading companies of today’s market will continue to lead at least in the near future. The companies in the market should be compared with like product groups otherwise, the results will be misleading. A software company should be compared with other software companies to select the best in that industry.

Growth of Sales

The company may be a leading company, but if the growth in sales in comparatively lower than another company, it indicates the possibility of the company losing the leadership. The rapid growth in sales would keep the shareholder in a better position than one with the stagnant growth rate. The company of large size with inadequate growth in sales will not be preferred by the investors. Growth in sales is usually followed by the growth in profits. Investor generally prefers size and the growth in sales because the larger size companies may be able to withstand the business cycle rather than the company of smaller size.

The growth in sales of the company is analysed both in rupee terms and in physical terms. Physical term is very essential because it shows the growth in real terms. The rupee term is affected by the inflation. Companies with diversified sales are compared in rupee terms and percentage of growth over time.

Stability of Sales

If a firm has stable sales revenue, other things being remaining constant, will have more stable earning and wide variations in capacity utilization, financial planning and dividend. Periodically all the financial newspapers provide information about the market share of different companies in an industry. The fall in the market share indicates the declining trend of the company, even if the sales are stable in absolute terms. Hence, the stability of sales also should be compared with its market share and the competitors’ market shares.

Sales Forecast

The Company may be in a superior position commanding more sales both in monetary terms and physical terms but the investor should have an idea whether it will continue in future or not. For this purpose, forecast of sales has to be done. He can forecast the sales in different ways.

The investor can fit a trend line either linear or nor linear whichever is suitable.

Historical percentage of company sales to the industry sales can be analysed. Even simple least square technique could be used to find out the function Cs = f (I) i.e. Cs – company sales; I – Industry sales.

The sales growth can be compared with the macro-economic variables like gross domestic product, per capita income and population growth.

The different components of demand for the company’s product have to be analysed because the demand may arise from different sources. For some product the demand may be from the consumers as well as from the industries. For example, steel and petroleum products are demand by consumers and industries.

The demand for the substitutes and competitors’ product also should be analysed using least square techniques.