Industry analysis is the analysis of a specific branch of manufacturing, service, or trade. Understanding the industry in which a company operates provides an essential framework for the analysis of the individual company—that is, company analysis. Equity analysis and credit analysis are often conducted by analysts who concentrate on one or several industries, which results in synergies and efficiencies in gathering and interpreting information.

Among the questions we address in this reading are the following:

• What are the similarities and differences among industry classification systems?

• How does an analyst go about choosing a peer group of companies?

• What are the key factors to consider when analyzing an industry?

• What advantages are enjoyed by companies in strategically well-positioned industries?

After discussing the uses of industry analysis in the next section, Sections 3 and 4 discuss, respectively, approaches to identifying similar companies and industry classification systems. Section 5 covers the description and analysis of industries. Also, Section 5, which includes an introduction to competitive analysis, provides a background to Section 6, which introduces company analysis. The reading ends with a summary, and practice problems follow the text.