How do you assess moat?
Two Steps to Identify an Economic Moat
- How does the company make money?
- What products/services are the cash cows for the company?
- What industries does the company operate in?
- Who are the biggest players in the industry?
- What is the company doing now to improve the value of its products/services?
Is it better to have a wide or narrow economic moat?
Wide economic moats, on the other hand, offer substantial economic benefits and are expected to endure for a prolonged period of time, while narrow moats offer more modest economic benefits and typically last for a shorter period of time.
What does economic moat none mean?
Morningstar divides stocks into three categories according to moat size: wide moat (companies with the strongest competitive advantage) narrow moat (those with some competitive advantage) no moat (those with no sustainable competitive advantage)
What is a strong economic moat?
The term “economic moat” refers to a long-term competitive advantage. It allows a company to achieve superior margins that a company holds that protects its position in the marketplace. A company with a strong moat possesses a competitive advantage that is both strong and sustainable.
How to measure the returns of a moat company?
The moat companies display higher returns compared to their rivals. Two parameters we can use to measure the “return” of a company. First, Return on Equity (ROE). ROE measures the profitability of a company compared to its equity base. In terms of formula, ROE = Net Profit / Equity. The second parameter we can use is called Return on Asset (ROA).
What is a wide moat in business?
The wider the moat, the larger and more sustainable the competitive advantage of a firm. By having a well-known brand name, pricing power and a large portion of market demand, a company with a wide moat possesses characteristics that act as barriers against other companies.
What is an economic moat and why is it important?
Which is why a business that intends to remain dominant has to establish an economic moat. Economic moat describes a company’s competitive advantage derived as a result of various business tactics that allow it to earn above-average profits for a sustainable period of time.
What is a good Roe for a moat company?
As a rule of thumb, the moat companies will have ROE larger than 15\% and ROA above 10\%. But the company must display these numbers consistently for at least 5 to 10 years at a stretch. DuPont equation is a different way to see the formula of ROE. This equation separates and highlights the key drivers of ROE.