Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
Index
Table of Content
Introduction to Investment Banking
Valuation Methodologies
14
A. Valuation Techniques
18
21
95
D. DCF Valuation
112
150
A. Profiles
154
B. Case Studies
175
C. Industry overview
187
D. Research Techniques
205
Buy & Sell securities for their clients and provide stock advice
Facilitate buying and selling of stocks, bonds, options, currencies, derivatives and
other financial products (Flow & Exotic)
Clients include Institutional Investors like pension funds, mutual funds, private clients/
HNIs and individual investors, investment arms of non-finance companies
Follow stocks and make recommendations on whether to buy, sell or hold securities
Prepare Initiation Reports, Sector Reports and also Market Reports
Equity Research
Corporate Finance /
Advisory
Financing
M&A
Corporate Finance
Corporate Finance
Prospectus,
Placement
memorandums,
Valuation,
Underwriting
M&A valuation,
Deal structuring,
Restructuring,
Asset sales and
purchase,
Synergy analyses
Equity Research
Analyst Presentation
Equity Research
Initiation reports
Coverage report
Road shows
Coverage Report
Coverage report
Event Report
Deal notes
Corporates
Sales & Trading
Market making
Proprietary Trading
Market making
Proprietary Trading
Chinese Wall
Managing Director
Experience
8+ Years
Education
Top Undergraduate
Universities,
Usually Top-Tier MBA
Vice President
3- 8 Years
Top Undergraduate
Universities,
Usually Top-Tier MBA
Associate
0-3 Years
Top Undergraduate
Universities,
Usually Top-Tier MBA
Analyst
0-1 Years
Top Undergraduate
University
Role
Managing Directors primarily pitch ideas to
clients to source deals.
Managing Directors spend most of their time in
bringing business to the banks, executing
transactions for clients and maintaining existing
client relationships.
Vice Presidents are also responsible for finding
new clients and servicing existing clients. VPs
however spend more time managing Analysts
and Associates and in the pitch book creation
process
Associates manage analysts work and are
primarily responsible for financial models and
pitch book creation. In addition, they may be
involved in dealing with the MDs and going
over details of potential deals or discussing
numbers (commercial and financial DD)
Analysts perform all research and analysis,
build financial models and put together the
pitch book (deal coordination, commercial and
financial due diligence)
Corporate Finance
Financings
Client Advisory
Includes:
Acquisitions
Private Company Sale
Public Company Sale
Corporate Restructuring
Corporate Divestitures
Joint-Ventures
Includes:
Initial Public Offerings (IPO)
Secondary Offerings
Debt Syndication
Equity Private Placements
Bankers generally generate business through pitching transaction ideas to clients. Pitch Books - presentations
the bankers use for their clients, contain general information and include a wide variety of selling points they make
to potential clients. Pitch books almost always include valuation and research analysis on a number of companies
and/or industries
Pitch books again can be categorized as follows:
General : Usually, general pitch books include an overview of the I-bank and detail its specific capabilities
in research, corporate finance, sales and trading, primarily used to showcase credentials.
Deal-specific. Deal-specific pitch books are highly customized and are prepared specifically for the
transactions that bankers are proposing to their clients
Examples of common industry groups include FIG (Financial Institutions Group), Healthcare, Consumer/Retail,
Industrials, Natural Resources, TMT (Telecom, Media and Technology.. Often subgroups exist within the broader
group. For example, a Healthcare group may be segregated into biotechnology, medical devices,
pharmaceuticals, etc.
425,164
346,039
330,835
327,179
299,167
265,094
242,883
236,383
231,960
188,637
127,830
98,194
87,404
79,257
78,350
72,904
70,551
61,464
54,777
51,225
50,161
48,909
44,578
43,279
41,921
1,952.8
1,421.7
1,400.3
1,046.4
729.4
715.6
831.5
906.6
850.9
845.0
746.5
212.0
320.6
209.4
300.1
354.3
202.3
349.6
169.6
344.0
153.2
11
Number of Deals
325
331
280
249
185
133
224
204
230
259
245
79
171
35
110
114
47
167
41
47
13
133
327
121
59
Transaction Volumes
Completed Deals Worldwide: Annual Transaction Volume
Date Effective/Unconditional
Number of Deals
2008
2009
2010
2011
1,924,659
1,848,453
1,893,852
824,484
24,890
30,431
32,114
8,762
Industry Total
6,491,448
96,197
CLIENT
MARKETING
RESEARCH
& ANALYSIS
Investment Banks
DEAL
EXECUTION
KPOs
13
Copal Partners
Valuation Methodologies
14
Valuation Methodologies
Valuation Methodologies can be categorized as under:
A. Fundamental valuation: A stand-alone valuation methodology to compute the intrinsic value of an asset
B. Relative valuation: Valuing an asset relative to its peers
A. Fundamental Valuation:
The DCF (WACC, FTE, APV) model of valuation is a fundamental method.
Value of firm (equity) is the PV of future cash flows.
Ignores the current level of the stock market (industry).
Appropriate for comparing investments across different asset classes (stocks vs. bond vs. real
estate, etc).
B. Relative Valuation:
Comparable company analysis and comparable transaction analysis are relative valuation methods
Relative valuation is based on P/E ratios and a host of other multiples.
Can not compare value across different asset classes (stocks vs. bond vs. real estate, etc).
Can not answer the question is the stock market over valued?
Can answer the question, I want to buy a tech stock, which one should I buy?
Can answer the question, Which one of these overpriced IPOs is the best buy?
15
Qualitative related to or based on the quality or character of something, often as opposed to its size
or quantity.
16
17
Copal Partners
Valuation Techniques
18
Valuation Overview
Valuation is the process of determining the current worth of an asset. Valuation answers the question How
much will it cost to acquire the asset?
Further Valuation analysis is done to answer questions like:
How much should Acquirer pay to buy the target?
Is the price offered for the company fair to shareholders?
Is company undervalued / overvalued in the industry?
What is the underlying value of the business against which debt is being issued?
Should we buy/sell/hold positions in a given security?
Thus, Investment banks perform valuation on firms, or parts of firms for several reasons:
Contribution into a Join Venture or Mergers & Acquisitions (Buy side or sell side engagements)
Recommended bid for an acquiring firm
Assess Public equity offerings IPO etc
Floatation of debt or equity or credit
Valuations are not scientific. It is highly dependent on a strong set of assumptions and inputs. A valuation is
only as good as the quality of inputs. Analyst look at a variety of valuation methods to quantify value.
19
Valuation Techniques
There are three primary methods of valuing a company:
Comparable Company Analysis (Trading Comps) Trading Comps analyze key valuation ratios of
comparable companies that are trading in the market to give an indication of what fair value is and compares
firms financial performance to its market value.
Comparable Transactions Analysis (Transaction Comps) Transaction Comps analyze value based on
historical takeout multiples of comparable targets to give an indication of what one would have to pay to
acquire the company. It also includes control premium.
Discounted Cash Flow (DCF) Discounted cash flow analysis is based on cash flow generation potential of
business. It uses projected cash flows in the future to determine the value of company at the present time. It
involves discounting levered / unlevered cash flows by equity cost of capital or weighted average cost of
capital.
20
Copal Partners
21
Index
Table of Content
Overview
23
Key Definitions
24
Source of Information
29
31
32
Market Capitalization
41
Balance Sheet
47
Enterprise Value
58
Income Statement
61
74
Understanding Multiples
78
22
23
Key Definitions
Market capitalization
Stock Options
Warrants
A derivative security or certificate that gives the holder/ bearer the right to
purchase securities (usually equity) from the issuer at a specific price within
a certain time frame
Convertibles
24
Represents the number of shares that would result if all stock options,
warrants and convertible debts were traded in for stock.
Treasury stock method is used in determining the number of
shares outstanding
Results in an increased number of shares outstanding and decreased
earnings per share
The purpose of the Treasury method is to account for the cash generated by
the exercise of options and/or warrants
Treasury stock method assumes that the options and/or warrants are
exercised at the beginning of the year (or issue date if later) and such
proceeds are used to repurchase outstanding shares of common stock
Example
Current share price
Shares outstanding
Options/ warrants outstanding
Exercise price
Proceeds from conversion of in the money options
Stock buyback (at premium)
Diluted Shares
25
$ 50
400 mn
10 mn
$ 25
10 x $ 25 = $ 250mn
$ 250 / $ 50 = 5 mn
400 + 10 5 = 405 mn
Minority Interest
Preferred equity
Capital lease
26
Enterprise Value
Formula to calculate Enterprise Value
Total Enterprise Value (TEV or EV) is the term bankers use when
they refer to the total value of a company (also referred to as
Aggregate Value)
Market Capitalization
+ Total
Debt
+ Minority
Interest
+
Preferred Stock
+
Capital Leases
Cash & Cash Equivalents
= Enterprise Value
or
EV
58
59
Enterprise Value
Example 1. What is the Market Cap & EV for the company:
B/S as on 31 Dec 2010 (in CNY mn):
Cash
Debt
Minority Interest
Current exchange rate for HK$ to CNY is 1.1
200
175
50
5.00
60
5.00
5,000
Income Statement
Income Statement Information
Revenue/ Net Sales: Income from sales of goods and services, minus the cost associated with elements such
as returned or undeliverable merchandise, discounts, and allowances. Also called sales revenue, net sales,
net revenue, and sales
Other revenues: The total revenues which the company has earned may include other revenues incidental to
business. These are revenues derived from activities not directly related to the operations of the Company
and therefore should not be included in turnover. For instance, Rental income should not be included in
turnover. However, revenues of real estate companies will primarily consist of rental income. Therefore,
identify the Companys business and decide the composition of revenues accordingly
EBITDA: EBITDA means earnings before interest, taxes, depreciation and amortization. It is an indicator of the
cash earnings that a company generates from its on going and recurrent operations regardless of its capital
structure. EBITDA can be used to analyze the profitability between companies and industries, because it
eliminates the effects of financing and accounting decisions. (EBITDA is often used as an indicator of
unlevered cash flow in case of scarce information).
EBIT: EBIT means earnings before interest and taxes. It measures the income that a company generates from
its on going and recurrent operations. Also called Operating Income or Income from Operations
Net Income: Net Income represents total earnings available to common shareholders. Net Income is derived by
subtracting all costs of doing business, depreciation, interest and taxes from revenues. Share of minorities for
the period and preferred stock dividends, must also be deducted to arrive at Net Income.
61
62
63
64
65
66
67
68
72
Line item
Joint Venture
Discontinued operations
Restructuring cost / expenses
Expenses related to merger and acquisition transactions
Write down / Impairment of assets (both tangibles and intangibles
including goodwill)
Impairment of leasehold expenses
Loss / Gain on sale of tangible & intangible assets
Loss / Gain on sale of investments, other than marketable
Amortization of deferred compensation
Equity based compensation expense- stock options or warrants
Writing back of any provisions or reserves
Gain/Loss on sale of marketable securities
Income from associates / affiliates
Litigation settlement
Loss / Gain on sale or termination of an operation
Foreign currency exchange gain / loss
Accounting changes
Tax benefit from exercise of options
Provision for doubtful accounts
Amortization of debt issuance costs
Expenses associated with the Sarbanes Oxley Act
Rental income
Government grants or subsidies
Severance costs
Facilities consolidation
Gain / Loss on early extinguishment of debt
Early retirement costs
Redundancy costs
Donations
Amortization of Negative goodwill
Add Back
Y
Y
Y
Y
Tax adjustment
Comment
Y
Different treatment for different purposes
Y
No tax adjustment if net of tax
Y
Y
Y
Y
Y/N
Y
Y
Y/N
N
Y
Y
Y
Y
Y/N
Y
N
Y
Y
N
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
N
N
Y
Y
N
Y
Y
Y
Y
Restructuring expense
Y
Y
N
Item can be treated as exceptional or normal depending upon the industry and analysis
73
Understanding Multiples
Multiples are ratios with equity value (Price) or enterprise value (EV) in the numerator and a standardizing factor
(Earnings, Sales, Book Value, etc.) in the denominator.
Price/Earnings (PE) and variants (PEG and Relative PE)
EV/EBIT
EV/EBITDA
EV/Cash Flow
EV/ Book Value of Assets
EV/Sales
P / Book value
Both the value (the numerator) and the standardizing factor ( the denominator) in multiples represent the
same claimholders in the firm
For instance, value of equity is standardized with equity earnings, and enterprise value (value of entire firm)
is standardized with EBITDA or book value of assets
For multiples to make sense, the standardizing factor (earnings, EBITDA, etc) must be computed using
same accounting rules across all firms being compared
78
Multiples Example 1
EV/EBITDA=9.90x, EV/EBIT=12.38x, P/E=26.67x
EV/Sales=3.94x, EV/EBITDA=9.85x, EV/EBIT=12.31x, P/E=26.67x
79
Using Multiples
In order to use a multiple effectively to pass judgment on valuation of a firm:
Know how the multiple was computed
Same multiples can be computed differently. For instance, P/E can be computed as Price/LTM
Earnings, Price/Fiscal Year Earnings, or Price/Forward Earnings Estimate
Define the comparable asset universe of the multiple
It can be all firms in a sector, industry, entire market, or any subset thereof
Understand the fundamentals (growth, risk, profit margin, etc. ) that drive the multiple, and the nature of
the relationship between the multiple and each fundamental variable
These relationships explain the variations in multiple across firms
The relationship between a fundamental (like growth) and a multiple (such as PE) is seldom linear.
For example, if firm A has twice the growth rate of firm B, it will generally not trade at twice its PE ratio
It is impossible to properly compare firms on a multiple, if we do not know the nature of the
relationship between fundamentals and the multiple
Know the cross sectional distribution of the multiple across comparables
Multiples have no value when looked at in isolation
80
81
Multiples Example 2
Example 2. Calculate the Basic P/E, Diluted P/E, adjusted Basic P/E & adjusted Diluted P/E multiple with
the following information:
(all figures in US$ mn except share data)
Share price $10.00
Shares outstanding
1,000
5,000
Restructuring charges
1,000
500
300
1,500
Interest Expenses
500
500
82
83
PE Fundamentals
To understand the fundamentals, start with a basic equity discounted cash flow model
Dividend discount model for equity price
P0
DPS1
r g
Where, DPS1 is dividends per share next year, r is equity risk, and g is perpetual growth rate
The above relationship implies that, other things held equal:
Higher growth firms will have higher PE ratios than lower growth firms
Higher risk firms will have lower PE ratios than lower risk firms
Firms with lower reinvestment needs will have higher PE ratios than firms with higher reinvestment rates
84
85
Multiples Example 3
Example 3. What is the EV/EBITDA, EV/EBIT and EV/FCFF for the company:
(all figures in US$ mn)
Share Data
Income Statement
Share Price
$5.00
Revenue
Shares outstanding
1,000
COGS
270
SG&A
200
B al an ce Sh eet
1,000
Cash
200
R&D
50
Debt
175
Restructuring expenses
30
Minority Interest
50
EBIT
Tax rate
450
30.0%
50
Amortization of intangibles
50
Capex
100
(75)
Adjusted EBIT
Adjusted EBIT
= 450 + 30 = $ 480 mn
Adjusted EBITDA
Adjusted EBITDA
= 480 + 50 + 50 = $ 580 mn
FCFF
FCFF
EV/FCFF
EV Ratio Alternatives
Most analysts find FCFF to complex or messy to use in multiples (partly because capital expenditures and
working capital have to be estimated) They use modified versions of the multiple with the following
alternative denominators such as EBIT or EBITDA
EBIT: pre-tax operating income
EBITDA: earning before interest, taxes, depreciation, and amortization
Assume that you have computed the value of a firm, using discounted cash flow models. Rank the
following multiples in the order of magnitude from lowest to highest?
EV/EBIT
EV/EBITDA
EV/FCFF
88
89
90
The best approach is to choose a set of relevant multiples that make most sense for that industry or sector,
given how value is measured and created
91
Sector Multiples
Sector
Multiple Used
Rationale
Cyclical Manufacturing
EV/Sales, Price/Sales
Heavy infrastructure
EV/EBITDA
Financial Services
Price/Book Value, PE
Retailing
Price/Sales, EV/Sales
92
Copal Partners
DCF Valuation
112
Index
Table of Content
Time value of money
114
Cost of capital
127
137
Sensitivity Analysis
138
DCF-based valuation
139
Terminal Value
145
148
149
113
114
Cost of Capital
Corporate capital budgeting decisions are based on expected return on investment
Investment examples include building a new plant, launching a new product, or acquiring another company
Cost of Capital is the required return necessary to make a capital investment worthwhile
Capital is provided as either debt or equity, hence Cost of capital includes Cost of Debt and Cost of Equity
Cost of Capital = Weighted average of Cost of Debt and Cost of Equity
The Cost of Capital determines the optimal way for the company to raise money (through a stock
issue, borrowing, or a mix of the two)
127
Cost of Equity
The cost of equity is the rate of return that investors require to make an equity investment in a firm
There are two approaches to estimate the cost of equity
Dividend-growth model
Risk and return model
Dividend growth model specifies the cost of equity to be the sum of the dividend yield and the expected growth
in earnings
Useful for mature companies that distribute most of the earnings to shareholders as dividends
Risk and return model, on the other hand, tries to answer two questions:
How do you measure risk?
How do you translate this risk measure into a risk premium?
128
CAPM
CAPM or Capital Asset Pricing Model is a risk and return based model for computing expected return on equity
(Cost of Equity to the firm)
According to CAPM, expected return of a security or a portfolio equals the return on a risk-free security plus a
risk premium
Re = Rf + b (Rm- Rf)
Rf: Rate of return for a risk-free security
Beta b: measure of equity risk relative to market portfolio
Rm: Expected return on market portfolio (average risk investment)
Rm-Rf: Market risk premium
Example: Compute the expected return on IBM stock, given that risk-free rate is 4%, IBM beta is 1.4, and
market risk premium is 5.5%
Re [IBM] = 4% + 1.4*5.5% = 11.70%
Implies that in the long-term, investors expect to earn 11.70% return on IBM stock
129
CAPM Inputs
Rf: Riskfree rate
Usually the short-term US Govt. T-bill rate or the long-term US Govt. Security rate, since they have no
default risk
The choice between short-term rate and long-term rate depends on the investment horizon
Firm valuations are over a long-term horizon, so use long-term US Govt. Bond rate for firm valuation
130
Re = a + b Rm
Where a is the intercept and b, the slope of regression, is the beta of stock and measures the riskiness of
the stock.
This approach has several issues:
High standard error
Beta is based on historical business and leverage of the firm, either or both of which may be different in
the present
Approach 2: Bottom-up approach
Find out the businesses that a firm operates in
Find the unlevered betas of other firms in these businesses
Take a weighted (by sales or operating income) average of these unlevered betas
Lever up using the firms debt/equity ratio
131
Hence, Intel needs to make at least 11.98% as return for their equity investors. This is the hurdle rate for
projects, when investments are analyzed from an equity standpoint. In other words, Intels Cost of Equity
is
11.98%
132
NOTE: The cost of debt has to be estimated in the same currency as the cost of equity and the cash flows
133
Market Value of Debt is more difficult to estimate because few firms have only publicly traded debt. There are
two solutions:
Assume book value of debt is equal to market value
Estimate the market value of debt from the book value?
134
WACC represents the investors opportunity cost for investing in a particular business instead of others with
a similar risk.
WACC
E
* Re
V
D
* Rd (1 Tc )
V
Re = cost of equity
Rd = cost of debt
E = market value of the firm's equity
D = market value of the firm's debt
V=E+D
E/V = percentage of financing that is equity
D/V = percentage of financing that is debt
Tc = corporate tax rate
WACC is used as the discount rate for all cash flows with risk that is similar to that of the overall firm
135
WACC
E
* Re
V
WACC[IBM ]
D
* Rd (1 Tc )
V
150
*11.70%
200
10.08%
50
*8%(1 35%)
200
136
FCFF = CF available to all investors = EBIT taxes increases in working capital +/- deferred taxes + D&A - Capex
Free Cash Flow to Equity (FCFE) is the portion of FCFF that is available to companys equity investors.
This is a measure of how much cash can be paid to the equity shareholders of the company after all
expenses, reinvestment and debt repayment
FCFE = CF available to equity investors only = Earnings after interest and taxes increases in working capital
+/- deferred taxes + D&A - Capex
137
Sensitivity Analysis
Sensitivity Table
Sensitivity Analysis aim at showing the value impact if changing individual key assumptions or the main
value drivers. Following is an example of valuation sensitivity to assumptions regarding cost of capital and
terminal growth.
138
139
Debt (D)
Assets
(A)
Equity (E)
Claim holders
140
t n
ValueEquity
FCFEt
t
Re )
(1
t 1
t n
141
Value Firm
(1
t 1
FCFFt
t
WACC )
Project future earnings and cash flows (FCFF) for 5-7 years by estimating an expected growth rate in sales
and earnings during this period
Growth rate may also vary from year to year
For fast growth companies, estimate when the firm will reach stable growth and what characteristics (risk &
cash flow) it will have when it does
For mature companies, estimate a nominal growth rate for cash flows beyond the projection period. This is
usually equal to the growth rate of the economy
142
Value of Firm
=
Present value of operating FCFF during explicit forecast period (5-7 years)
+
Present value of cash flow after explicit forecast period (Terminal
Value)
143
NOTE : FCFF does not include any of the financing related cash flows such as interest expense or dividends
PVF CFF
(1
t 1
FCFFt
WACC )
144
Terminal Value
Two ways for estimating terminal value:
Assume that the firm will generate the last forecast year cash flows in perpetuity
Can also assume a modest growth rate (usually equal to the GDP growth rate)
Terminal Value
=
C n (1 g )
WACC g
Terminal Value
=
EBITDA *
n
EVcurrent
EBITDAcurrent
145
146
Tax rate:
Marginal tax rate vs. Effective tax rate?
147
148
153
Sources
165
Brokers Rating
Reflects the market / broker views on fundamentals of the Company i.e. a higher rating reflects strong
fundamentals & hence low level of risk and a lower rating reflects weak fundamentals & hence high level of
risk
Indicates the analyst consensus
The Brokers rating chart gives the breakup of the total number of Buy, Hold and Sell recommendations over
an last twelve months (LTM) period
The section on Analyst Commentary provides commentary on the company from the analysts research reports
The commentary highlights the strengths of the company and how it has been able to benefit from these
strengths. It may also include the Companys recent developments and which may have affected the
share price and/or the analyst recommendation of the company
Sources
167
Stock exchange
websites
Sources
Databases such as
Bloomberg, FactSet,
DataStream, Capital
IQ etc
168
Sources
169
Sources
170
Sources
Research reports
Databases such as Bloomberg, Capital IQ etc
171
Sources
172
Sources
Research reports
173
Sources
Research reports
174
Copal Partners
Case Studies
175
Project execution
Insights through primary research
Using insights from industry personnel will help in a deeper understanding of
the industry on which you are working
Create a call list within 1-2 days so that the questions that arise from the
hypothesis are sent to these contacts
Assign 1 or 2 persons to check for information on companies,
industry associations and their contact details
Send the interview requests by email at the beginning of the study. This
allows for the process to get started while the team conducts the secondary
research
The same set of questions should not to be sent to all persons in the mailing list.
Queries sent to different persons should be pertaining to their respective
areas of operations
Do not just write an email for information request and wait for people
to respond. Be proactive, keep calling until you get the desired data
from external and internal contacts
Follow a reasonable caution while calling up external sources
203
Key questions:
So what does this mean?
Will this affect the sector, economy or the region being analyzed?
Will the impact be positive or negative?
Is the rate of change fast or slow? (Will the impact be strong and immediate or not?)
Does this get you closer to proving or disproving your current hypotheses?
204
Copal Partners
Research Techniques
205
Introduction
There are a lot of research methodologies used to prepare an Industry piece. The most extensively used
techniques are as follows:
A. SWOT Analysis
B. PESTEL Analysis
C. Porters Five forces model
206
SWOT Analysis
A. SWOT Analysis: An analysis of STRENGTHS,WEAKNESSES, OPPURTUNITIES and THREATS.
Extremely useful tool for understanding and decision-making
Applicable in all businesses and organizations
Provides a framework for reviewing strategy, position and direction of a company or business proposition,
or any other idea
Can be used for business planning, strategic planning, competitor evaluation, marketing, business
and product development and research reports
Presented as a grid, comprising four sections, one for each of the SWOT headings
SWOT analysis can be used to assess:
company (its position in the market, commercial viability, etc)
method of sales distribution
product or brand
business idea
strategic option, such as entering a new market or launching a new product
opportunity to make an acquisition
potential partnership
changing a supplier
outsourcing a service, activity or resource
an investment opportunity
207
PESTEL Analysis
B. PESTEL Analysis
PESTEL is an acronym for Political, Economic, Social, Technological, Environmental and Legal
PESTEL Analysis helps analyze factors in the macro-environment that affect the decisions of the managers
of any organization
Examples include: Tax changes, new laws, trade barriers, demographic change, government
policy changes etc
Helps analyze the many different factors in a firm's macro environment
It is important not to just list PESTEL factors because this does not in itself tell much
Need to find out, which factors are most likely to change and which ones will have the greatest impact
on the company i.e. each firm must identify the key factors in their own environment
208
209
210