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Stocks 305: Quantifying Competitive Advantages

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1.
Which of the following measures will not affect return on assets (ROA)?
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Asset/equity ratio. The asset/equity ratio will affect return on equity (ROE), not ROA.
2.
When using net profit margin to look at the relative efficiency of companies, it is best to use it _______.
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Within the same industry. It is best to use both net profit margin and turnover in isolation only if looking at very similar companies.
3.
If a company's ROIC (return on invested capital) exceeds _______ for a several years, it most likely has an economic moat.
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15%. Provided that it occurs for a number of years, this figure suggests a moat.
4.
Which of the following ROAs (return on assets) suggests that a company has an economic moat?
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20%. If a company has generated ROAs in excess of 10%, the company may indeed possess such a moat.
5.
You've probably discovered a good cash machine if a company's free cash flow is more than _______ of sales.
Choose wisely. There is only one correct answer.
5%. Five percent is generally accepted, though you should investigate the company further.