Porter's 5 Forces

AAA

DEFINITION of 'Porter's 5 Forces'

Named after Michael E. Porter, this model identifies and analyzes 5 competitive forces that shape every industry, and helps determine an industry's weaknesses and strengths.

1. Competition in the industry
2. Potential of new entrants into industry
3. Power of suppliers
4. Power of customers
5. Threat of substitute products

INVESTOPEDIA EXPLAINS 'Porter's 5 Forces'

Frequently used to identify an industry's structure in order to determine corporate strategy, Porter's model can be applied to any segment of the economy to search for profitability and attractiveness.

VIDEO

Loading the player...
RELATED TERMS
  1. BCG Growth Share Matrix

    A planning tool that uses graphical representations of a company’s ...
  2. Throughput

    In business, the rate at which an organization reaches a given ...
  3. Six Forces Model

    A strategic business tool that helps businesses evaluate the ...
  4. Barriers To Exit

    Obstacles or impediments that prevent a company from exiting ...
  5. Porter Diamond

    A model that attempts to explain the competitive advantage some ...
  6. Loss Leader Strategy

    A business strategy in which a business offers a product or service ...
RELATED FAQS
  1. Which of these is not one of Porter's 5 competitive forces?

    Which of these is not one of Porter's 5 competitive forces? a) Threat if new entrantsb) Threat of subsitute goodsc) Rivalry ... Read Full Answer >>
Related Articles
  1. Professionals

    Porter's Five Forces

    Porter’s Five Forces is an analysis scheme created by Harvard Business School professor Michael E. Porter. Using this analysis tool, business managers can gauge the level of competition within ...
  2. Markets

    Using Porter's 5 Forces To Analyze Stocks

    These five qualitative measures allow investors to draw conclusions about a corporation that are not apparent on the balance sheet.
  3. Fundamental Analysis

    Understanding the Capital Adequacy Ratio

    The capital adequacy ratio (CAR) is an international standard that measures a bank’s risk of insolvency from excessive losses. Currently, the minimum acceptable ratio is 8%. Maintaining an acceptable ...
  4. Investing

    What does Large Cap mean?

    The “cap” in large cap refers to a company’s capitalization as determined by the total market value of its publicly traded shares. Large cap is short for “large market capitalization.”
  5. Stock Analysis

    What Would Be Of BreitBurn Energy This Summer?

    This Spring, BreitBurn Energy Partners' banks will take a closer look at its credit facility and redetermine its borrowing base.
  6. Fundamental Analysis

    Efficiency Ratio

    There are many types of efficiency ratios, but all measure how well a company utilizes its resources to make a profit. Business managers use these ratios to determine how well they are operating ...
  7. Investing Basics

    What is Profit?

    Profit is a general term used to denote when earnings exceed the expenses incurred to generate those earnings.
  8. Investing

    Deferred Tax Liability

    Deferred tax liability is a tax that has been assessed or is due for the current period, but has not yet been paid. The deferral arises because of timing differences between the accrual of the ...
  9. Charts & Patterns

    Why These Are 2015's Most-Promising Bank Stocks

    Which bank stocks should offer the best bang for your buck in 2015? Possibly these, so read on.
  10. Fundamental Analysis

    Interested In Pharmaceutical Stocks? Try Novartis (ADR)

    Novartis AG, is the world's leading pharmaceutical company by sales. Here is a closer look at Novartis, and how its financials stack up.

You May Also Like

Hot Definitions
  1. Risk Averse

    A description of an investor who, when faced with two investments with a similar expected return (but different risks), will ...
  2. Fixed-Charge Coverage Ratio

    A ratio that indicates a firm's ability to satisfy fixed financing expenses, such as interest and leases. It is calculated ...
  3. Efficiency Ratio

    Ratios that are typically used to analyze how well a company uses its assets and liabilities internally. Efficiency Ratios ...
  4. Fixed Cost

    A cost that does not change with an increase or decrease in the amount of goods or services produced. Fixed costs are expenses ...
  5. Subsidy

    A benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction. The subsidy ...
  6. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
Trading Center