The SWOT analysis helps to identify strengths, weaknesses, opportunities and threats of a company. Investors can thus better assess how well a company is positioned in the market – but should consult further analyses.
• Important part of fundamental analysis • Combines internal and external factors for a well-founded strategy
• Useful for assessing company strengths – but not the sole deciding factor for investments
What is the SWOT analysis
SWOT analysis is an important part of fundamental analysis. As the acronym SWOT reveals, the analysis is used to determine strengths, weaknesses, opportunities and threats of companies and organizations. The strengths and weaknesses relate specifically to the company (internal analysis), while the opportunities and threats relate to the market in which the company operates and thus to external factors over which the company has no influence (external analysis).
Strengths, weaknesses, opportunities and risks at a glance
Strengths are individual factors that can give the company a competitive advantage, such as a strong brand or unique products.
Weaknesses, on the other hand, are individual factors that can lead to competitive disadvantages, such as dependencies on business partners, a lack of a unique selling point or poor processes.
The opportunities are for changes in the market environment that can have a positive impact on the company’s future success, such as technological progress or changes in customer behavior.
On the other hand, risks can have a negative impact on the future success of the company. Possible risks could be, for example, political conditions or new competitors.
Derive strategies
After analyzing the strengths, weaknesses, opportunities and threats, the results from the internal and external analysis must then be brought together, as a mere list is not enough – but strategies can be derived from the combination. Four strategies emerge from the so-called SWOT matrix.
If you look at the combination of strengths and opportunities, a company can use its strengths to take advantage of the opportunities that the market environment offers.
If you combine a company’s weaknesses with its opportunities, it becomes clear where there is still room for improvement in order to benefit from the opportunities in the market environment.
If you take a look at the strengths and risks, you can derive strategies on how the company can use its strengths to protect itself against certain market risks.
The combination of weaknesses and risks is the most dangerous for companies and should be avoided if possible.
SWOT analysis when buying stocks
If you as an investor get an overview of the strengths and weaknesses of a company and the opportunities and risks of the market in which the company operates and bring them together, you get an initial insight into how well a company is doing in the respective market.
However, the SWOT analysis requires precise research and a good understanding of the industry in order to be able to properly assess strengths and weaknesses as well as opportunities and threats. In addition, no investment decision should be made based solely on the SWOT analysis. Investors should definitely take a closer look at a company or stock.
Editorial team finanzen.net
This text is for informational purposes only and does not constitute an investment recommendation. finanzen.net GmbH excludes any claims for recourse.