Application of Analytical Tools

I would avoid lending my friend money in this scenario. Despite the fact that I appreciate my friends and I am always willing to help them whenever I can, I do not consider this as a viable investment. My position is caused by the idea that his idea is not credible and it is not a reliable investment. To start with, the business faces a high threat from a rival. He informed me that there are several fast-food restaurants in the home city who sell pizza and approximately two to three restaurants are developed every month.  The many restaurants that are available will develop multiple incentives to make sure that they remain competitive in the market. As such, this seems to be an industry that is likely to face very high competition. Such high competition is not healthy because my friend may decide to lower his prices to become more competitive. Lowering process may be detrimental to the business because it may cause increased expenses which will finally lead to losses. Also, maintaining customer loyalty is such high competition is not that easy and hence return on investment is not predictable.

The second reason why I would not consider lending my friend money is because of the presence of a threat of substitute products. As the number of grocery stores selling frozen food has increased rapidly, the threat of substitute products has increased because the substitute products meet similar customer needs. That implies that the high availability of substitutes will be a considerable threat attributed to the presence of firms selling frozen dinners. These conditions indicate that there will be no above normal profits in the market. With little profit being incurred, my friend will find it difficult to refund my money. Also, with such type of competition, it will be challenging to get adequate funds to carry out business expansion. That means that he will only operate as a small-scale retailer which translates to minimal profits.