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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.
What does a company's turnover ratio measure?
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How efficiently the company uses its assets to generate sales.
3.
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.
4.
You've probably discovered a good cash machine if a company's free cash flow is more than _______ of sales.
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5%. Five percent is generally accepted, though you should investigate the company further.
5.
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.