Set out the questions an industry and competitive analysis should answer

Before forecasting a company's numbers, an analyst needs to understand the economics of its industry and its place within it. The first question is how attractive the industry is for long-run profitability, which depends on rivalry, the threat of new entrants and substitutes, and the bargaining power of suppliers and buyers. The second is the company's competitive position: low-cost producer, differentiator or focused niche player. The third is how well it has executed its strategy, judged against its own history and its rivals. The analyst also checks the quality of the financial statements, because reported earnings may not reflect economic reality. The trap is extrapolating past growth without asking whether the advantage that produced it will survive.