Corporate Portfolio Analysis Techniques

by Linda Ray

A corporate portfolio analysis is similar to the kind of scrutiny you apply to your personal portfolio. You look at the various investments and gauge their individual performance, moving away from those that are doing poorly and adding to the high-producing products or selling business units that have peaked to free up resources for other investments. Various techniques are used to analyze a portfolio under a corporate umbrella.

Methods

By grouping various aspects of the business into different categories, you can decide where to place additional resources and which divisions need to be slashed or changed. According to Reference for Business, the technique of grouping high-yield and poor-performing divisions is limited. You can’t give specific areas of business the kind of scrutiny and dedication they may deserve. You could miss smaller, potentially profitable divisions when they are placed with other divisions. Grouping divisions by performance is simple, however, and serves as a starting point in your overall portfolio analysis.

Considerations

Comparing each unit or department in your company to similar businesses in your industry is another technique to analyze your portfolio. Each division competes at different levels, and the competitive analysis provides a more accurate look at how each fares against a similar customer base. The market share that each division holds and the potential for growth is based on realistic profits and projections inherent in the specific role the division plays in the company. The variables you use to analyze the information can be selectively chosen to provide the most accurate picture and help you gain market share accordingly.

Pros

An analysis of your various units within the company provides you with a basis upon which to create your marketing strategies, shows you where you need to increase or decrease investment and where your weak and strong points exist. Whether you analyze each unit individually or group the units by performance, you can quickly gauge the overall performance of the company and identify risks. The portfolio analysis gives you a platform from which you can build your stockholder reports and provide realistic projections. The techniques show you how diversified your company is and how each unit works together to create the whole.

Cons

The portfolio analysis often is over-simplified. Performing a portfolio analysis too often can result in excessive changes that don’t help your company in the long run. While grouping units often overlooks niche areas that could shine, using individual analysis of each unit too often ignores the synergy that takes place between units or product lines in your portfolio. Relying solely on one technique often leads to misinterpretation as well. For example, a low market share doesn’t necessarily mean a unit is not profitable and vice versa. Use the portfolio analysis as a tool and not as the definitive picture of your company’s overall health.

About the Author

Linda Ray is an award-winning journalist with more than 20 years reporting experience. She's covered business for newspapers and magazines, including the "Greenville News," "Success Magazine" and "American City Business Journals." Ray holds a journalism degree and teaches writing, career development and an FDIC course called "Money Smart."

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