How To Compare To Your Nearest Competitor? - Part 4

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Video Length: 00:16:39

How to compare

Compare to your nearest competitor?

To other competitors in your country?

To other companies in your region?

To assure you are truly Financially World Class compare to global peers

Benefits of comparing to nearest competitor

Easy to calculate, you don’t need a finance expert for that

Gives management team one target to focus on

Consumers may be making a choice between these two companies

It is the “most comparable” company

Weaknesses of comparing to nearest competitor

If that competitor is performing poorly, then beating them may not be a strong measure of success. Your future competition could come from many other companies. Focusing only on beating your nearest competitor may get management team overly focused and then miss opportunities and miss the new competitors approaching.

Comparing brands (Apple Macbook to Dell XPS) is sometimes a very close comparison. But comparing brands is not the same as comparing companies, with brands we rarely have financial disclosure.

Comparing against a direct competitor, such as Coke vs. Pepsi, may not be as simple as it seems. PepsiCo’s snack foods division accounts for more than 50% of its revenue, while Coca-Cola’s revenue comes almost all from beverages. You could try to breakout PepsiCo’s beverage division and compare that to Coca-Cola’s. However, most companies try to reveal the minimum of financial details amount about divisions so getting this data may be hard.

In conclusion, the direct comparison method sounds good, and sometimes works, but in practice there are many flaws. After years as an analyst doing directly comparison my answer is… “There is no perfectly comparable company.”