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Stocks 305: Quantifying Competitive Advantages

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1.
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.
2.
Which expenses are not subtracted from sales when calculating NOPAT (net operating profit, after taxes)?
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Interest. Interest expenses are not subtracted from operating profit when calculating NOPAT. Taxes (the "AT" in NOPAT) obviously are, while COGS are subtracted from sales to get to operating profit.
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 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.
5.
What does a company's turnover ratio measure?
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How efficiently the company uses its assets to generate sales.