Association of Chartered Certified Accountants (ACCA) Certification Practice Test

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What does Porter's Five Forces model primarily assess?

The marketing strategies of a company
The profit potential of the industry as a whole
The competitive advertising techniques
The cost structure of a business

The correct answer is: The profit potential of the industry as a whole

Porter's Five Forces model primarily assesses the profit potential of the industry as a whole by analyzing the competitive forces that influence a company's ability to achieve profitability within its market. It focuses on five key factors: the threat of new entrants, the bargaining power of suppliers, the bargaining power of buyers, the threat of substitute products or services, and the intensity of competitive rivalry within the industry. This model provides insights into how these forces affect the competitive landscape and overall industry dynamics, helping businesses understand the underlying drivers of profitability and strategy formulation. By evaluating these forces, companies can determine the attractiveness of an industry and identify strategic opportunities or threats related to competitive pressures.