NISM Certifications · NISM-Series-XV: Research Analyst · Company Analysis - Business and Governance
While assessing a listed company's business, a research analyst studies its 'moat'. Which of the following best describes an economic moat?
An economic moat is a durable competitive advantage, such as a strong brand, cost leadership, switching costs or network effects, that protects a company's profits and returns on capital from erosion by competitors over a long period.
- AA durable competitive advantage that protects a firm's profits from competitorsCorrect
- BA one-time tax concession given to the firm by the government
- CThe amount of cash a firm keeps aside for dividends
- DThe gap between a firm's book value and its face value
Explanation
An economic moat is a sustainable competitive advantage such as brand, cost leadership, switching costs or network effects that shields returns on capital from rivals. The other options describe tax, cash policy or share value measures, not competitive protection.
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