NISM Certifications · NISM-Series-XV: Research Analyst · Company Analysis - Business and Governance
In analysing a company's business model, which of the following best describes an 'economic moat'?
An economic moat is a durable competitive advantage, such as a strong brand, cost leadership, network effects or high switching costs, that protects a company's long-term profitability from competitors. It is structural and lasting, unlike temporary cost benefits or market price gaps.
- AA durable competitive advantage that protects a firm's long-term profits from competitorsCorrect
- BA temporary fall in raw material prices that lifts margins
- CThe legal minimum capital a company must hold
- DThe gap between a stock's market price and its book value
Explanation
An economic moat is a sustainable competitive advantage such as brand, cost leadership, network effects or switching costs. It lets a firm earn returns above its cost of capital for long periods. A temporary input cost fall is cyclical and not durable, so it is not a moat.
Did you get it right without looking?
One question tells you little. A timed set on Company Analysis - Business and Governance shows your real accuracy, how long you take and where you lose marks.
More Company Analysis - Business and Governance questions
- Which of the following is a qualitative factor an analyst would assess when judging the quality of a company's management?
- A company's promoters held 60 million of 100 million shares. Of these, 24 million shares are pledged with lenders. The share price falls sha…
- Which of the following is most clearly a corporate governance red flag that a research analyst should highlight about a listed company?
- Which of the following is generally regarded as a positive indicator of a company's management quality when conducting qualitative analysis?
- An analyst studies a company's business model and finds that it earns most revenue from a single customer who accounts for 60% of sales. Whi…
- A company's promoters held 60% of its shares. They pledged 30% of their holding to lenders. What percentage of the company's total share cap…