NISM Certifications · NISM-Series-XV: Research Analyst · Company Analysis - Business and Governance
Which of the following is generally regarded as a feature of a company with a durable economic moat?
A company with a durable economic moat can earn returns on capital above its cost of capital for a long time, because structural advantages such as brand, cost leadership or switching costs protect its profits from competitors. Customer concentration and price cuts show weakness, not a moat.
- AAbility to earn returns on capital above its cost of capital over a long periodCorrect
- BDependence on a single large customer for most of its revenue
- CFrequent price cuts to retain market share
- DHigh debt used to fund routine working capital
Explanation
An economic moat is a structural competitive advantage that lets a firm sustain returns above its cost of capital. Customer concentration, constant price cuts and heavy debt reliance are signs of vulnerability rather than a moat.
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