Porter’s Five Forces Model is very qualitative in nature. It does incorporate some quantitative factors but for the most part, it is a very subjective approach. This post attempts to set quantitative assessment of Porter’s five forces.

A general check point before you begin Porter five force quantitative analysis, one should be able to clearly articulate and understand the economics behind the business of the firm which you are evaluating

Use the below template to analyse five forces

Porter Force How to Analyse
Threat of Entry Economies of Scale See if the per unit / tonne cost is going down with capacity expansion
Check if company can outsource non core operations, that should improve gross margins
Check average capex requirements, this should be trending down
Product differentiation Check competitor prices of products, Is it a price maker or taker in the industry
Look at EBIDTA margin, A company with EBIDTA margin is likely to have differentiated product
Check Sales price per piece if applicable and compare it to competitor
Cost advantages Compare net profit margin with peers, stack the competitors from high to low in terms of net margin
Distribution Channels For consumer goods company or companies selling through agents, Compare with nearest competitors
Government policy Check for licensing requirements for business to operate, this can create huge moat
Intellectual Property Look for patents, copyrights, trademarks, and operating rights that protect a firm’s process.
Watch year on year spent on R&D and Advertisement & promotion
Power of suppliers See for cash advances from suppliers / distributors
See if Trades payable are improving
Many suppliers or single supplier to firms , Single supplier will likely to have bargaining power viz many suppliers
Power of buyers Type of purchases – concentrated or in large volumes
Sold to consumer or business, if sold to business is it significant to their operations ?
Threat of substitutes See ROE/ROC of the business, Monitor industry developments and breakthroughs

Download template Porter and start analysing companies, in a follow up post I will cover an example

Happy Investing