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Company Business Model Analysis

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Analytical Corporate Valuation

Abstract

This first step of the company analysis focuses on the business model. The company’s “health condition” in a defined period of time and its ability to create profit over time requires an analysis based on two main elements:

  • a qualitative analysis of the business model;

  • a quantitative analysis of the effects of the business model choices on the economic and financial dynamics over time.

A qualitative analysis of the company’s business model focuses on the Company Strategic Formula (CSF).

The CSF defines the strategic profile of the company on the basis of two different strategic fronts:

  • internal strategic front referring to the internal structure of the company;

  • external strategic front referring to the structural relationships between the company and the players of its environment classified into two main groups: business players and financial players.

The CSF allows for simultaneous optimisation of the companies operating in the Strategic Business Area and Capital Market. The internal and the external strategic fronts are strictly connected on the basis of systemic and dynamic bidirectional relationships. In this sense the CSF must be “continuant”: it is achieved only if the relationships between all of its elements are Systemic-Structural-Dynamic.

A quantitative analysis of the company focuses on the economic and financial dynamics over time. Several analytical schemes can be used. In this context the analysis is developed on the basis of Operating and Net Income, Capital Invested and Capital Structure, and Free Cash-flow from Operations and Free-Cash Flow to Equity.

The qualitative and quantitative analyses are strictly related. The competitive advantage of the company, on the basis of its business model, must be reflected in the economic and financial values over time. Consequently, it is not possible to investigate into the company by only taking into consideration the analysis of its business model without considering the effects of the strategic choices on the economic and financial dynamics. At the same time, it is impossible to investigate into the company’s ability to perform by considering the economic and financial dynamics without clearly understanding the source of the strategic choices.

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Authors and Affiliations

  1. Department of Law and Economics of Productive Activities, Sapienza University of Rome, Rome, Italy

    Pasquale De Luca

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  1. Pasquale De Luca
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Correspondence to Pasquale De Luca .

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De Luca, P. (2018). Company Business Model Analysis. In: Analytical Corporate Valuation. Springer, Cham. https://doi.org/10.1007/978-3-319-93551-5_1

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