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Unit 8: Fundamental Analysis 2: Industry Analysis
Degree to which establishments are specialized Notes
Importance of their output in the national total
The trend of these elements when analysed, reveal vital information about the position and
progress of the industry. Illustratively some lead points are given here:
A decrease in number of establishments and employment accompanied by an increase in
the other elements of the profile means increased automation.
An increase in value of sales, unaccompanied by an increase in value added and capital
expenditure signifies rising prices.
An increase in value added without an increase in capital expenditure signifies increase in
labour productivity.
A fall in the share of industry in national total implies decline of industry.
8.4.2 Cumulative Methods
These are based either on market surveys or statistical measurements:
1. Surveys: Surveys are carried out by research agencies, consultants, industry association
and the research bureau of media. These surveys generally study the current facilities and
demand, future demand and proposed investment, and thereby the expansion prospects
vis-à-vis demand gap. Other factors like, strengths and weaknesses of the organization,
environmental forces are also brought into focus to evaluate the future of the industry.
Notes Surveys adopt the methodology of inquiry, through questionnaires and interviews.
The subjects will be either manufacturer or dealers/end users.
2. Correlation and Regression analysis: Statistical methods like correlation and regression
analysis can be of much help in demand measurement. The following steps have general
application.
(i) Determine the total requirement for the type of product in question by present
customers in each industry classification.
This can be done by asking the customer or obtaining the estimate from the salesmen,
or by comparing with other customers of same size and class.
(ii) Correlation product requirement of customer establishments with a variable to
output for which accurate published data are available. Generally, employment is
the most useful variable.
The correlation can be observed by preparing a scatter diagram, as or calculating
mathematically, using the formula given below:
N (xy) ( x)( y)
Degree of relationship (r) = 2 2 2 2
[n x ( x) ][N x ( y) ]
Where X = Number of employees
Y = Number product items
The nearer the correlate n coefficient is to +1 or – 1, the closer the relationship of the
two variables under study.
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