Table of Contents
What are the different types of moats?
There are five types of moats:
- Low-cost production;
- High switching costs;
- Network effects;
- Intangible assets;
- Efficient scale.
What is a moat rating?
A moat rating is an analysis of a company’s economic moat — How effective it is at a given moment, and for how long the moat will remain effective. A moat can be “wide,” meaning it’s expected to last for at least the next twenty years, or “narrow,” meaning it could last for about a decade.
How do I create a business moat?
Economic moats can be created in one of three ways, as follows:
- Production advantages. A company achieves production advantages when it is able to provide a service at a lower cost than that of its competitors.
- Consumer advantages.
- Brand value.
How do I create a moat for my business?
A clear way to build economic moats around a business is to have a differentiator that is impossible to replicate, either due to legal means, or factors that aren’t fungible. Intangible assets constitute patents and trademarks, but also hard-earned competitive advantages, such as brand names and culture.
What is a startup moat?
What is “Moat” in a Startup? In its literal sense, a moat refers to a ditch that is dug around a castle or a fortress to prevent enemies from breaching this line of defense and attack the central building. Startups are typically brand new businesses that bring some unique value proposition to the market.
What does build a moat mean?
Building an economic moat means creating a long-lasting competitive advantage that other businesses can hardly replicate. Creating a long-lasting competitive advantage often relies heavily on the regulatory, cultural and social environment where a business operates.
What is product moat?
Key Takeaways. An economic moat is a distinct advantage a company has over its competitors which allows it to protect its market share and profitability. It is often an advantage that is difficult to mimic or duplicate (brand identity, patents) and thus creates an effective barrier against competition from other firms.
What does a moat look like?
Although they’re usually depicted as wide, deep bodies of water, moats were often simply dry ditches. Some moats surrounded the castle itself, while other moats might have enclosed several buildings or even a small town. Dams could be built that would control the level of water in the moat.
How do you identify wide-moat stocks?
Keeping an eye on free cash flow (FCF) yield or owner earnings yield is one great way to initially identify wide-moat companies that are trading relatively inexpensively. Companies that have a wide moat and trade at a FCF yield that is approaching 10\% are generally in a great price range for a potential purchase.
What are the characteristics of a company with an economic moat?
Margins: One of the first characteristics of a company with an economic moat is its high margins. In a sector, the company will display profit margins substantially higher than its competitors. Read more. Turnover: There may be a case where the sector itself is too competitive. Companies in such a sector cannot display high margins.
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).
Are companies with a wide moat in a good price range?
Companies that have a wide moat and trade at a FCF yield that is approaching 10\% are generally in a great price range for a potential purchase. Here is an example of 5 companies that I feel have wide moats and trade at reasonable prices: