What Is a Business Portfolio Analysis?

Mary McMahon

A business portfolio analysis is a thorough evaluation of a company's products and services. The purpose of such a review is to determine where a company should focus its investments and business activities. Companies can hire a third party firm to perform this work, or they can do it internally with assistance from key members of management. This can be part of a plan for reorganizing, improving business strategy, or cutting costs to make a business run more efficiently.

A business portfolio analysis may become part of an annual report.
A business portfolio analysis may become part of an annual report.

The first step in a business portfolio analysis is to determine the contents of the business portfolio. For a single business with no holdings, this can be a relatively simple task, as any products and services provided will be easy to list. Businesses with subdivisions, departments dedicated to other activities, and separate holdings are harder to analyze. In these cases, analysts must carefully track down all holdings within the portfolio to get a detailed and complete picture.

Business portfolio analyses evaluate a company's products and services.
Business portfolio analyses evaluate a company's products and services.

With information about the portfolio's contents in hand, the analyst can start to look at performance. This can include sales numbers, comparisons with competitors, and so forth. Business portfolio analysis can also integrate projections. A company with a great deal of business related to a service that will become obsolete due to changing industry standards, for example, may need to think about ways to compensate for projected drops in business. Complete overviews can highlight areas where companies are growing or struggling.

Analysts may offer opinions as part of the business portfolio analysis. They could point at specific products and services that might yield better returns with more investments, because of room for growth. It is also possibly show where the company could afford to cut spending. Established products may not need lavish budgets, for example, while others may generate low returns on investments. Finally, an analyst can point at products and services that should be phased out.

Time needed to perform a complete business portfolio analysis can depend on the size of the business and the level of detail required. Companies that hire third party consultants can ask for an estimate to learn more about what to expect from the process. With the report in hand, companies can make decisions about their business practices that are likely to benefit them in the long term. The information can also become part of an annual report discussing business activities and decisions for the benefit of shareholders.

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