Fertilizer companies
Ok now what we have here is another raw material component that is used in the farming industry. Fertilizer is added to the soil to make the plants grow better and for the crops to produce a better yield. Fertilizer is in two forms, inorganic and organic. Most of the products that a fertilizer company produces are bags of various soil rich additions to make the farmers crop better. So basically anything that will enhance the metabolic reactions of the plants to produce better quality product and help in cross pollination and further propagation and improvement to the earth so that continuous farming can take place over the seasons with different seasonal crops.
So where there’s farming there is fertilizers. The companies that make the bags of fertilizers are basically forming different percentage of compound ingredients like nitrogen, phosphate and potash. These are then added with various other raw ingredients to make a finished product which is then packaged and distributed to the farmers.
The farmer adds this to his land and plants his crop. And each harvest is expected to produce a better yield as a result.
Factors like weather and other influences like disease and pests can also affect the overall yield of the crop, as a result most of the companies also produce pesticides as part of their product portfolio, which might not make the most nutritious of foods as compared to organic foods but this is the modern era of farming and agriculture that we live in today.
So in a strong agricultural economy a fertilizer company is usually a safe investment that will grow and produce a good return on investment.
Chemical companies
Well this is a very interesting sector. It forms one of the basic components of various types of commodities. So this will have impact on many other sectors and many industries. You will find that chemical components will have more than 70,000 different types of uses in various forms of goods.
Ranging from creating cleaning equipment, to making paints, uses in the food industry, in the pharmaceutical industries in making medicines and in processes and R&D, in wood and wood products, for use in the oil and gas sector, pulp and paper products and many others, agriculture and machinery.
So how do these companies make revenue, they provide the necessary chemical ingredients and solutions to various sectors for the processing and manufacture of other goods and provision of services.
In the industrial sector in the manufacture of most goods in plastics and various polymers, in the production of various kinds of foods, or the making of paper, chemistry is necessary and a fundamental ingredient in the process of making a finished good.
So most other industries rely heavily on the chemical industry and are the customer base of the various chemical ingredients that they apply to their design and processes.
It’s a very profitable industry but has high barriers to entry as it takes large capital investments to setup an industrial plant that produces the chemicals for the use in different products.
If you understand the basis of how these companies work, with the margins involved and how they generate revenue then they can form a key part of a given return on investment.
However, you do have to be involved in the recent developments in the various industries to see the impact it has on potential growth and future investments. They are also involved in pioneering new methods and technologies in improving the quality of life.
The chemical industry is very much reliant on the consumer behaviour and choice of people that creates the necessary means to which it is acting as a key supplier to other industries.
Energy companies
Well this is a very different business model to most companies. How do energy companies make their money? The basics of this is based on two methods and that is providing supply of energy to domestic and non domestic consumers and also by energy generation and production.
Electrical energy companies invest heavily on producing the facilities or power houses designed for energy production. Each energy unit produced is then supplied to domestic and non-domestic consumers who purchase the units in the form of a monthly bill sent to their homes. This revenue generated to the company is then offset against any costs of investment, supply of services, corporate costs and any interest payments that might have been incurred as a result of loans taken out to invest in the project.
It is a heavily regulated industry so that consumers do not pay too much for their bills and there are policies and guidelines by which the energy companies have to adhere to otherwise it can result in fines being levied against them.
In certain countries the energy companies are so heavily regulated that profit margin, price rates, rate of returns are all prefixed by the regulator. One has to look carefully at the factors involved in the industry to determine whether it’s a safe predictable rate of return or whether any changes to the industry will result in consequences that may cause an energy company to go out of business. There can be instances where it is a low risk and guaranteed rate of return in certain economies, well guaranteed to a certain degree.
Other places it is a matter of the economic factors, interest rates, and supply and shortfall of energy in the provision of Gas, power generation or other factors that has overall effect on the profitability and rate of return to investors.
Profit margin in selling wholesale energy can be 5 times as much more profitable than supply of energy to consumers.
This is the energy industry and unless one knows all the factors involved in the business it can be a complex business, although most are vertically integrated generating energy and supplying it to consumers. There are many factors that one has to be aware of particularly the influence of the regulatory authority to determine whether it’s an investment to be entered into.