CHAPTER 12

Future Performance

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If a business has been historically good, the next step is to see if it’s likely to remain so. This is harder, because accounting results for future periods don’t exist, obviously. So instead one turns to strategic analysis. Specifically, four qualitative tools help to assess a firm’s prospects.

The first is what I call breadth analysis. It asks two questions. One, is the company’s customer base broad, and unlikely to consolidate? And two, is the company’s supplier base broad, and unlikely to consolidate? The business isn’t good unless the answer to both is yes.

I define a broad customer base as one where no single ...

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