Supply – How to find quality businesses

Compounder, Moat, Scale Economies, Value Creation

What differentiates a good business that earns a long-term above-average return from a mediocre business that, at best, only earns a return close to its cost of capital? A good business can control its supply while a mediocre business can’t.  Take Ferrari. Ferrari has a 24% operating margin with above-average return on capital, higher than […]

Scale Economies

Analysis, Moat, Scale Economies, Strategy

Scale economies is one of the seven moats of quality companies.  Scale economies mean the fixed cost per unit falls as volume increases. Fixed cost is indivisible. And indivisibilities are more likely when an activity is capital intensive. The 3 main sources where scale arises are distribution, manufacturing and niche market.  A dense distribution network […]