Chapter 3 - Environmental Threats

Nucor (NUE) is a steel processor and manufacturer of a large array of steel products.  Nucor can be considered a mini-mill because of its size, but it makes up for it with technology.


Regarding the industry structure in which NUE operates, it would be classified as an Oligopoly - few competitors, has some of the same but also some different products and is able to generate a profit because it does not deal in perfect competition.


In applying the five forces model of environmental threats, I see the following for NUE:
Threat of Entry: There is a high capital cost for entry into the steel processing business, both in machinery and in experience.  This makes the threat of new entry low.
Threat of Rivalry:  The threat of rivalry is high, especially when overseas steel manufacturers are included in the assessment.  NUE uses technology to gain a competitive advantages where possible, plus it generates steel deliverables within so many commercial areas (flat rolled steel, steel bars, beams, plates, trusses, grating, mesh, re-bar, wire, bolts, etc.) that it has many price points it can use to offset pricing wars in any given area.
Threat of Substitutes: This threat is low, as steel is a necessary component in many products.  The use of plastics, aluminum, etc. might transplant steel in a few areas, but not in all.
Threat of powerful Suppliers: NUE uses scrap metal (it is the largest recycler of metal in the western hemisphere) as a primary raw component in its steel production.  NUE has facilities to collect scrap, but it also purchases scrap from suppliers.  Increases in price by scrap metal suppliers would adversely impact NUE.
Threat of powerful Buyers: This threat is low, as no one company purchases a significant amount of NUE's products.

Chapter 2 - NUE's accounting measures

According to E*Trade, NUE's simple accounting measures supports a company that is well run and in good financial condition:

I decided to calculate the Adjusted Accounting Measure to further review NUE's performance.  E*TRADE calculates the ROIC to be 4.49%.  I calculated the WACC using the S&Ps market return rate and determined that NUE's ROIC is lower than its WACC, which I found to be 11.71%, meaning NUE is not exhibiting superior performance because ROIC is greater than WACC.  That said, when I used the Iron&Steel industries market return, NUE's ROIC was greater than its WACC, showing NUE does have superior performance in its industry.

Company I'm covering this semester

I plan to use Nucor (NU) as the company I will follow and blog about for each chapter of our MGMT 7160 text.

Blog creation

I've created this blog to post my thoughts and ideas during a graduate school course at the University of Memphis.  This is my first test entry.