Cover all bases of external factors which can affect a company and market negatively and positively
PESTLE is a way of looking at external factors that you can use to evaluate a business. It stands for political, economic, social, technological, legal, and environmental factors. And while it's not an official acronym or anything like that (at least not yet), it's a useful framework for analyzing the factors that affect industries and the market potential of products and services.
Let's dive into each of these categories in more detail.
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When it comes to political factors affecting businesses, there are many different things you should consider. It's important to understand that these are outside of a company’s control and that they can have a dramatic effect on the way the company operates. Some of the most common political factors include:
Economic factors are related to the economy, and they include inflation, interest rates, and employment. These factors can impact businesses because they affect their ability to sell products or services.
For example, a retailer selling clothes or shoes, then they will have to think about how changes in the overall cost of living might impact customers' purchasing power. If people are having trouble making ends meet because of high inflation or rising unemployment rates, then they may be less likely to spend money on new clothes.
Inflation can also affect businesses that rely on raw materials purchased from overseas markets (such as oil companies). If those markets become unstable due to political unrest (which has happened many times throughout history), then prices for these raw materials will rise dramatically—and so will costs for any companies that buy them domestically before using them in production processes.
Social factors are the way society interacts with a business. They can be broken down into two categories:
Social structures, which relate to how people interact with each other and/or you
Social norms, which are the accepted standards of behavior within a society
The technological factors of a business are a key part of a business's success. Technology can be used to improve business processes, customer service, marketing, and advertising campaigns, as well as efficiency in general.
Legal factors include government regulations, contracts, and laws. For example:
Government regulations could include import/export restrictions that are imposed on a business, or changes to labor laws that may affect a company´s ability to attract and retain employees.
Government contracts can be an opportunity for growth if they are won, but they also come with a lot of red tape and require special accounting measures.
There are many other legal factors in play when running a business - from taxes (like corporate tax rates) to environmental laws (such as emissions standards).
The environment has been the factor in focus for the last years as ESG has become more important for investors, company’s, and society in general.
Climate and weather: including wind, temperature, and precipitation.
Geography: the physical layout of a place, including mountains and bodies of water.
Population: the number of people living in an area.
PESTLE is a way of looking at external factors that you can use to plan your business.
PESTLE is a way of looking at external factors that you can use to plan your business. It stands for political, economic, social, technological, and legal/environmental factors. This tool helps you identify the external factors that could affect your business and lets you plan for them.
How to use PESTLE in investment analysis?
PESTLE analysis is used for external analysis and will cover the most important areas, PESTLE is preferable combined with SWOT and used to determine the Opportunities and Threats in the SWOT analysis. If you want to read about SWOT analysis click the link to my post about SWOT analysis.
PESTLE analysis is very useful to have cover all basis of external factors that effect companies and markets. It reminds you so you don’t overlook any risk which you may disregard at first glance, but it is very important to think about the risk in the areas PESTLE covers.
Happy stock hunting!
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