Porter’s 5 forces is a model that is used to evaluate business risk when an appraisal is done towards large corporate customers.

Examine how this model is used by lenders to determine the long-term profitability and performance of a company, using an example.

Porter five forces is a method which will be helpful in understanding competitive advantage which lies in profitability of industry in which the enterprise is located and relative competitive position of the Enterprise in the industry so it will be trying to analyse the performance in various different aspect of the business which is related to bargaining power of suppliers along with bargaining power of buyers and new entrants along with the threat of substitute and competition of existing competitors in industry, so it will help the company in order to understand the core competency in various respects.

This model is used by lenders to determine the long-term profitability and performance of the company as the lenders will be trying to analyse the ability of company to generate higher profitability using economies of scale and using price differentiation and they will be also determining the sustainability of business using various types of threat of substitute and threat of competition so they will be analysing the profitability of the company along with they are also analysing the performance of company in the long term by determining the competitive advantage in respect to gaining a understanding of bargaining power of buyers and supplier.

For example, the lender will be trying to analyse the bargaining power of suppliers and the pricing power of the company in respect to setting up with the prices of products which will be reflecting the threat of competition and substitute and the bargaining power of buyers.