- CFA Exams
- 2025 Level I
- Topic 5. Equity Investments
- Learning Module 5. Company Analysis: Past and Present
- Subject 2. Determining the Business Model
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Subject 2. Determining the Business Model PDF Download
The first step of company analysis requires an understanding of the issuer's business model, for which analysts rely on both issuer and third-party information sources.
What is a Business Model
A business model describes how a business is organized to deliver value to its customers:
- Who: Who are the firm's target customers?
- What: What product or service does the firm offer? How is it different from competitors' offerings?
- Where: How does the firm sell/deliver its offering and reach its customers? via intermediaries or direct sales?
- How much: What is the pricing strategy? Value- or cost-based pricing? Is it justified in the business model? Can price discrimination be employed?
- Source and suppliers: What does the company buy and rely on?
The "Who + What + Where + How Much + Source" is a firm's value proposition. It refers to the product or service attributes valued by a firm's target customer that lead those customers to prefer a firm's offering over those of its competitors, given relative pricing.
How: How is the firm structured to deliver that value? What are its assets and capabilities? This is also referred to as a firm's value chain. Information sources to answer these questions include the issuer, public third party, proprietary third party, and proprietary primary research.
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