Business Analysis

We use PAR ROS as a measure of profitability rather than ROI because a significant proportion of businesses these days have nearly zero or negative investment and therefore resource allocation is about people, R&D, marketing etc. not investment. In our equation we spilt the factors into three catagories, those affecting your competitive position, facotrs relating the the market environment you operate in (e.g. growth, innovation and customer characteristics), and those relating to the cost and capital structure of your business. This enables you to see not only the impact of individual variables on expected (PAR) profitability but also whether your overall Competitive position, Market environment and Cost and Capital Structure have a positive or negative impact on profitability relative to the PIMS average profitability. Many of the ratios used in the model relate to Cost added rather than ratios to sales or value added. This is because both Sales and Value Added include profit, so there is an inherent tautological negative profit impact. It is not a good idea for PAR profit to depend on actual profit! Definitions of the variables in the model are shown below:

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