Question

How is a SWOT Analysis a useful tool in analyzing a company? Did you use the SWOT analysis (even if inadvertently) when choosing your stock or bond investments? What are the implications of not analyzing the company in which you are considering an investment?

Answer 1

The SWOT (Strength Weakness Opportunities and Threats) This is done through knowing the strength among the competitors ,the weakness it has to work upon ,what opportunities it can capitalize upon and the threats in the foreseeable future. After analyzing the above factors, an investor can have a thorough knowledge of weather to invest in this stock or not for better future returns.

When choosing between the stocks and bonds we can study the strengths of issuing additional capital through bonds, as bonds are cheaper but the threat lies in the fact that too much debt can push a company to a state of bankruptcy.

The strenght of raising capital through stock is that the investment raised need not be returned but the threat lies in meeting with the investors expectations and equity dilution.

When an investor invests in a stock without such analysis, then there is a possibility that the stocks may not generate the desired returns and the investment money can be turned into huge losses.