Assess trends in how large an industry is, its growth, its profitability and the market shares within it
The idea
An industry's attractiveness is measured before a company's position in it. Size is total revenue or units sold, estimated from company reports, industry bodies or a build-up of customers multiplied by spending. Growth separates volume from price and cyclical from structural change, and an industry's stage in its life cycle (embryonic, growth, shakeout, mature or declining) shapes both growth and competition. Profitability is compared through margins and returns on capital across firms and over time. Market share and its trend, often summarised by concentration measures such as the combined share of the largest firms, show whether a few firms dominate and whether leaders are gaining or losing ground, which bears directly on pricing power.
A practice question
Kestrel Paints has revenue of 120 in an industry with total revenue of 1,600. Its market share is:
- 8.1%Why not: Divides by industry revenue excluding Kestrel's own sales (1,480), which understates the size of the market.
- 0.75%Why not: Slips a decimal place when converting 0.075 into a percentage.
- 7.5% — correct
Market share = company revenue / industry revenue = 120 / 1,600 = 7.5%.
A harder one
Industry sales rose from 400 in 2021 to 520 in 2025. The compound annual growth rate over the period is closest to:
- 6.8% — correct
- 7.5%Why not: Divides the total 30% increase by four years, an arithmetic average that ignores compounding.
- 5.4%Why not: Counts five periods by including both end years, when 2021 to 2025 spans four years of growth.
CAGR = (520 / 400)^(1/4) − 1 = 1.30^0.25 − 1 = 6.8%.
The hardest tier
Brisley Telecom held a 10% market share. This year its revenue grew 8% while industry revenue grew 12%. Its new market share is closest to:
- 10.8%Why not: Applies the company's growth to its share without allowing for growth in the industry total.
- 6.0%Why not: Subtracts the 4-point growth gap from the share, confusing growth rates with percentage points of share.
- 9.6% — correct
New share = 10% × 1.08 / 1.12 = 9.6%. Growing more slowly than the industry means losing share even while revenue rises.
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