What is the role of a SWOT analysis in business planning?

• A. SWOT identifies strengths, weaknesses, opportunities, and threats to inform strategic decisions.
• B. SWOT is a financial ratio used to measure liquidity.
• C. SWOT analyzes only external factors.
• D. SWOT determines pricing strategy only.

Answer: (A)

SWOT analysis is a structured tool for shaping business planning by mapping internal capabilities and external conditions. It identifies strengths and weaknesses inside the company and opportunities and threats in the market, giving a clear view of where to play and what to defend. This helps set realistic objectives, allocate resources wisely, and prioritize initiatives that capitalize on strengths while addressing weaknesses, all in light of external opportunities and risks. It’s broader than a single metric like liquidity and isn’t limited to external factors or pricing decisions, because it informs strategy across product, marketing, operations, and competitive positioning, and it supports risk assessment and scenario planning by revealing gaps to address and potential future challenges.