Meaning and definition of SWOT analysis
SWOT analysis refers to a tool that recognizes the Strengths, Weaknesses, Opportunities, and Threats of an organization. Generally, SWOT is a basic, simple model that evaluates the capabilities of an organization as well as its potential opportunities and threats. The method of SWOT analysis is to obtain info from an environmental analysis and separate it into internal and external issues. Once this is accomplished, SWOT analysis determines what may help the firm in accomplishment of its aims and objectives, and also in overcoming or mitigating the obstacles to achieve desired results.
As explained by Investopedia, it is essential to be realistic about the strengths and weaknesses of the organization while using SWOT analysis. Draw a line between where the organization stands today and where it could reach in future. Besides, it is also essential to be precise by avoiding dreary areas and conduct an analysis in relation to the competition. Finally, the SWOT analysis should be kept short and simple, in addition to avoiding complexity and over-analysis as much of the info is subjective. Therefore, it should be used as a guide rather than as a prescription.
Uses of SWOT analysis
The uses of SWOT analysis are not confined to profit-making organizations. SWOT analysis can be used in any decision-making situation when a desired objective has been delineated. SWOT analysis is basically a strategic planning method which is used for evaluating the Strengths, Weaknesses/Limitations, Opportunities, and Threats involved in a business venture or a project. It also involves stipulating the objective of the project or business venture in addition to identifying the internal as well as the external factors which are favorable and unfavorable for the accomplishment of that objective.
Objectives are set after the SWOT analysis has been performed thus allowing the achievable goals and objectives to be set for the organization.
- Strengths – distinctiveness of the business, or the project team that provides it an advantage over the others.
- Weaknesses – include the characteristics which place the team at a disadvantage as compared to others.
- Opportunities – include external chances of improving performance, like making profits, in the environment.
- Threats – include external elements from the environment that could lead to trouble for the business project.
- Debt ratios
- Liquidity ratios
- Profitability ratios
- Asset management ratios
- Cash Flow Indicator Ratios
- Market value ratios
- Financial analysis
- Business Terms
- Financial education
- International Financial Reporting Standards (EU)
- IFRS Interpretations (EU)
- Financial software