Network Effect is manifested in the Asset Turnover Ratio (Rev/Total Assets)
Intangible Assets & Customer Switching Cost are manifested in the 1st Level Profit Efficiency Yield, namely Gross Profit Yield from Revenue (GP/Rev).
Company Operational Cost Advantage is manifested in the 2nd Level Profit Efficiency Yield, namely The Quality of Gross Profit, i.e. Net Profit Yield from Gross Profit (NP/GP).
Very broadly speaking, a nonfinancial company that can consistently generate an ROA of 7 percent or so likely has some kind of competitive advantage over its peers.
— Pat Dorsey, Author of The little book that builds wealth
Great one. You had me at ROIC.
iii.
Analysis:
Network Effect is manifested in the Asset Turnover Ratio (Rev/Total Assets)
Intangible Assets & Customer Switching Cost are manifested in the 1st Level Profit Efficiency Yield, namely Gross Profit Yield from Revenue (GP/Rev).
Company Operational Cost Advantage is manifested in the 2nd Level Profit Efficiency Yield, namely The Quality of Gross Profit, i.e. Net Profit Yield from Gross Profit (NP/GP).
Synergized Structural Competitive Advantage
= MoAT
= Network Effect × (Intangible Assets & Customer Switching Cost) × Company Operational Cost Advantage
= Asset Turnover Ratio × Gross Profit Yield from Revenue × Net Profit Yield from Gross Profit
= Rev/Total Assets × GP/Rev × NP/GP
= GPA × NP/GP
= NP/Total Assets
= ROA
Gross Profitability (GPA)
= Mother of Net Profitability (ROA)
= Mother of MoAT
NP/GP
= Quality of Gross Profit (in generating net profit)
= Father of Net Profitability (ROA)
= Father of MoAT
iv.
In short,
Structural Competitive Advantage
= MoAT
= Profitability
= Productivity
= Earning Power
= ROA
v.
“All new projects should return at least 20% on total assets.”
— Henry Singleton
Warren Buffett once said: “Henry Singleton of Teledyne has the best operating and capital deployment record in American business.”
Reference:
25iq. com/2014/11/08/a-dozen-things-ive-learned-from-henry-singleton-about-value-investing-venture-capital/
vi.
Very broadly speaking, a nonfinancial company that can consistently generate an ROA of 7 percent or so likely has some kind of competitive advantage over its peers.
— Pat Dorsey, Author of The little book that builds wealth