Five forces

Porter's framework for industry profitability: the threat of entrants, the threat of substitutes, buyer power, supplier power and rivalry. The weaker they are, the more of the value it creates an industry keeps.

Where you will meet it

Five forces appears in 2 learning outcomes on the CFA syllabus. A few of them:

• Analyse the outside forces acting on an industry with the PESTLE framework
  CFA Level I · Equity Investments

  “Porter's Five Forces explains profitability through competitive pressure: rivalry among existing firms, the threat of new entrants, the threat of substitutes, and the bargaining power of suppliers and of buyers.”

• Show how inflation and a firm's competitive standing shape sales and cost forecasts
  CFA Level I · Financial Statement Analysis

  “Porter's five forces are the threat of new entrants, the threat of substitutes, the bargaining power of buyers, the bargaining power of suppliers and rivalry among existing competitors.”

See also

Threat of substitutes

Practise it

• Today's practice question One question, with every wrong option explained.
• Free Level I diagnostic test Twelve questions that show which topics to start with.
• Free finance calculators Check your arithmetic on the exam's core formulas.

All terms beginning with F · Glossary