REPUBLIC OF CAMEROON

REPUBLIQUE DU CAMEROUN

MINISTTERE DE L’ENSEIGNEMENT SUPERIEUR UNIVERSITY OF BAMENDA

MINISTRY OF HIGHER EDUCTION

INSTITUT UNIVERSAIRE DES GRANDES ECOLES DES TROPIQUES (IUGET) DOUALA

ISTTI BONAMOUSSADI BAMBILI - BAMENDA

OHADA ANALYSIS OF FINANCIAL

COURSE TITLE
STATEMENT
WRITTEN BY JASON KEUBOU PRESLY
DEPARTMENT ACCOUNTANCY
LEVEL 3
COURSE STATUS BACHELOR DEGREE
COURSE NAME AMINGO VENATIUS ASOGO
RESEARCH ON INDUSTRIES AND
FACILITATOR ASSIGNMENT
PEER GROUP ANALYSIS

ACADEMIC YEAR 2023/2024

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 INDUSTRY AND PEER GROUP ANALYSIS

1 INTRODUCTION

When analyzing the financial statement of companies, it's important to take into consideration the
industry that they operate in and compare them to their peers. This allows for a better understanding
of the company's performance and position in the market. Industry analysis helps to identify the trends,
opportunities, and challenges that affect a particular sector, while peer analysis provides insights into
the company's competitiveness and market share in comparison to its rivals.

1.1 Industry Analysis

Industry analysis involves examining the overall market conditions, regulatory environment, and
economic factors that affect a particular sector. This analysis provides an understanding of the
industry's growth potential, competitive landscape, and the external factors that may impact the
company's performance. For instance, a company operating in the energy sector may be affected by
changes in oil prices, government policies, and environmental regulations. Similarly, a company in the
technology sector may be impacted by advancements in technology, changing consumer preferences,
and global economic conditions.

1.2 Peer Group Analysis

Peer analysis involves comparing a company's financial performance, market share, and other key
metrics to its competitors. This analysis provides insights into the company's strengths and weaknesses
relative to its peers. For instance, a company with a higher market share may have a competitive
advantage over its rivals, while a company with lower profitability may need to improve its cost
structure or product offerings to remain competitive.

1.3 Best Option

When comparing companies, it's essential to conduct both industry and peer analysis to gain a
comprehensive understanding of their performance. By conducting industry analysis, analysts can
identify the macroeconomic factors that may impact the company's performance, while peer analysis
provides insights into the company's competitiveness and market share. The best option is to combine
both analyses to gain a holistic view of the company's performance and position in the market.

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1.4 Industry and Peer Group analysis Practical Example

For instance, when analyzing the financials of Total, a French multinational oil and gas company,
industry analysis would involve examining the global oil and gas market, including supply and demand
dynamics, geopolitical risks, and regulatory policies. Peer analysis would involve comparing Total's
financial performance, market share, and other key metrics to its competitors, such as Shell, BP, and
ExxonMobil. By combining both analyses, analysts can gain a better understanding of Total's
performance and position in the market.

1.5 How to Define and Apply a Consistent and Transparent Scale for Assigning Your Asset
Quality Rating

One of the key objectives of applying a consistent and transparent scale for assigning your asset quality
rating is to benchmark and compare your performance with the industry and your peers. This can help
you identify your strengths and weaknesses, as well as opportunities and threats, in the competitive
landscape. In this section, we will discuss how to conduct an industry and peer analysis using various
sources of data and metrics. We will also provide some examples of how to interpret and use the results
of the analysis for strategic decision making.

To perform an industry and peer analysis, you need to follow these steps;

1. Define your industry and peer group: You need to determine the scope and boundaries of
your industry and select a relevant and representative sample of your peers. You can use
criteria such as size, geography, product mix, customer segments, and risk profile to define
your industry and peer group. For example, if you are a small regional bank that focuses on
commercial lending, you may want to compare yourself with other similar banks in your
region or country, rather than with large global banks that have a different business model and
risk profile.
2. Collect and organize data: You need to gather data on the asset quality rating performance
of your industry and peer group. You can use various sources of data, such as financial
statements, regulatory reports, credit ratings, market data, and industry reports. You need to
organize the data in a consistent and comparable format, such as ratios, percentages, or scores.
For example, you can use the non-performing loan (NPL) ratio, the loan loss provision (LLP)
ratio, the net charge-off (NCO) ratio, and the credit rating score to measure and compare the
asset quality rating performance of different banks.

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 3. Analyze and interpret data: You need to analyze the data to identify the trends, patterns,
gaps, and outliers in the asset quality rating performance of your industry and peer group. You
need to interpret the data to understand the drivers, implications, and risks of the performance.
You can use various tools and techniques, such as descriptive statistics, graphical displays,
benchmarking, and gap analysis, to analyze and interpret the data. For example, you can use a
histogram to show the distribution of the NPL ratios of your peers, a line chart to show the
trend of the LLP ratios of your industry over time, a table to show the benchmarking of your
credit rating score against your peers, and a bar chart to show the gap analysis of your NCO
ratio against the industry average.
4. Use the results for strategic decision making: You need to use the results of the industry
and peer analysis to inform and support your strategic decision making. You need to consider
the strengths and weaknesses of your asset quality rating performance, as well as the
opportunities and threats in the competitive landscape. You can use various frameworks and
models, such as swot analysis, Porter's five forces analysis, and the balanced scorecard, to use
the results for strategic decision making. For example, you can use a swot analysis to identify
your internal strengths and weaknesses, such as your low NPL ratio and high LLP ratio, and
your external opportunities and threats, such as the increasing demand for commercial loans
and the rising interest rate risk. You can then use the balanced scorecard to translate your swot
analysis into strategic objectives, measures, targets, and initiatives, such as improving your
credit risk management, diversifying your loan portfolio, enhancing your customer service and
reducing your cost of funds.

1.6 Comparing Dividend Yield with Different level of Analysis

One of the most important aspects of dividend investing is to compare the dividend yields of different
stocks. dividend yield is the ratio of annual dividend per share to the current share price, expressed as
a percentage. It measures how much income an investor can expect to receive from a stock relative to
its market value. However, dividend yield alone is not enough to evaluate the attractiveness of a
dividend stock. Investors need to consider other factors, such as the sector, industry, and peer group
of the stock, to make a meaningful comparison. In this section, we will discuss how to compare
dividend yields across different levels of analysis, and what insights we can gain from doing so.

- Industry analysis: An industry is a more specific group of stocks that operate in the same or related
business activities within a sector. Different industries may have different competitive dynamics,
market conditions, and profitability margins, which affect their dividend yields. For example, within
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the utility sector, electric utilities may have higher dividend yields than gas utilities, because they have
more regulated pricing, lower operating costs, and less exposure to commodity price fluctuations.
Therefore, when comparing dividend yields, investors should also look at the average dividend yield
of the industry to which the stock belongs, and see how the stock compares to the industry average.
For instance, if an electric utility stock has a dividend yield of 4%, and the average dividend yield of
the electric utility industry is 3.5%, then the stock may be undervalued or have a higher dividend
growth rate than its peers.

- Peer group analysis: A peer group is a set of stocks that have similar characteristics, such as size,
growth, profitability, and dividend policy, within an industry. Different peer groups may have different
dividend yields, depending on their competitive advantages, financial strength, and shareholder
preferences. For example, within the electric utility industry, large-cap stocks may have lower dividend
yields than small-cap stocks, because they have more market power, lower risk, and higher valuation
multiples. Therefore, when comparing dividend yields, investors should also look at the average
dividend yield of the peer group to which the stock belongs, and see how the stock compares to the
peer group average. For instance, if a large-cap electric utility stock has a dividend yield of 4%, and
the average dividend yield of the large-cap electric utility peer group is 3%, then the stock may be a
good bargain or have a higher dividend growth rate than its peers.

By comparing dividend yields across different levels of analysis, investors can gain a deeper
understanding of the relative value, risk, and growth potential of a dividend stock. They can also
identify the best dividend stocks within a sector, industry, or peer group, and diversify their portfolio
accordingly. However, dividend yield is not the only metric to consider when investing in dividend
stocks. Investors should also look at other factors, such as dividend history, dividend growth rate,
dividend payout ratio, earnings growth rate, and valuation ratios, to assess the quality and sustainability
of the dividend. A high dividend yield may not always indicate a good investment, especially if it is
due to a declining share price, a low earnings base, or an unsustainable dividend policy. Therefore,
investors should always do their own research and analysis before buying any dividend stock.

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1.7 Where and How to Find Reliable and Relevant Data for Your Industry and Peer Group

One of the most important steps in cash flow benchmarking is to find reliable and relevant data sources
that can help you compare your cash flow performance with your industry and peer group. However,
finding such data sources can be challenging, as there are many factors to consider, such as the
availability, quality, timeliness, and comparability of the data. In this section, we will discuss some of
the common data sources for cash flow benchmarking, their advantages and disadvantages, and how
to use them effectively. We will also provide some tips and best practices for finding and selecting the
most appropriate data sources for your specific needs and goals.

Some of the common data sources for cash flow benchmarking are;

1. Financial statements: Financial statements are the primary source of information for cash flow
analysis, as they provide the cash flow statement, which shows the inflows and outflows of cash from
operating, investing, and financing activities. Financial statements can be obtained from various
sources, such as company websites, annual reports, SEC filings, databases, and platforms. Financial
statements have the advantage of being standardized, audited, and widely available, but they also have
some limitations, such as being backward-looking, aggregated, and subject to accounting policies and
assumptions. Therefore, when using financial statements for cash flow benchmarking, it is important
to adjust for any differences in accounting methods, reporting periods, and business models, and to
supplement them with other sources of information, such as management commentary, analyst reports,
and industry publications.

2. Surveys and reports: Surveys and reports are another source of information for cash flow
benchmarking, as they provide insights and statistics on the cash flow performance and practices of
various industries and peer groups. Surveys and reports can be obtained from various sources, such as
industry associations, consulting firms, research institutes, and media outlets. Surveys and reports have
the advantage of being timely, relevant, and comprehensive, but they also have some limitations, such
as being based on samples, estimates, and assumptions, and having varying methodologies, definitions,
and scopes. Therefore, when using surveys and reports for cash flow benchmarking, it is important to
verify the credibility, accuracy, and representativeness of the data, and to compare them with other
sources of information, such as financial statements, benchmarks, and ratios.

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