WEBVTT 00:03.240 --> 00:09.360 Hey Guys welcome to module 3 in this module I'll teach you how to identify a company's economic moat 00:09.660 --> 00:13.570 as well as understand how wide it is and why it's so important. 00:15.930 --> 00:22.890 So what exactly is an economic moat while regular cash flow well managed debt and a competitive advantage 00:22.890 --> 00:25.490 all play a role in enduring business success. 00:25.710 --> 00:31.500 The ability to develop a wide economic moat is the key to what separates the winners from the losers 00:31.500 --> 00:32.800 over the long term. 00:33.180 --> 00:37.860 What we referred to as a moat is what other people might call competitive advantage. 00:37.860 --> 00:43.530 It's something that differentiates a company from its nearest competitors in very simple words an economic 00:43.530 --> 00:49.200 moat is basically anything that gives a business some form of built in protection for its ongoing generation 00:49.200 --> 00:50.640 of cash flow. 00:50.670 --> 00:56.970 If you picture a company as a castle that is constantly under attack by its enemies or competitors you'll 00:56.970 --> 01:02.250 have a better understanding of just how important an economic moat is in helping a business to thrive 01:02.400 --> 01:04.910 and survive in the marketplace. 01:06.680 --> 01:11.780 And here's what you should keep in mind when evaluating a company without one or more protective Moat's 01:11.780 --> 01:17.540 firmly in place of formerly profitable business will soon find itself unable to maintain its market 01:17.540 --> 01:21.050 share and its revenues will begin to drop off. 01:21.050 --> 01:27.040 This also means that a company without a unique economic moat can't survive in the long term. 01:27.040 --> 01:31.970 It will be harder for it to compete with other companies within the same industry and it will be harder 01:31.970 --> 01:38.490 for direct cover for market downturns recessions or financial disasters. 01:38.510 --> 01:44.570 Remember that a competitive advantage is essentially any factor that allows a company to provide goods 01:44.570 --> 01:48.080 or services that are similar to those offered by its competitors. 01:48.290 --> 01:52.940 And at the same time outperform those competitors and profits. 01:53.000 --> 01:59.150 So the easiest way to determine the size of a company's economic moat is look at its historical operating 01:59.150 --> 02:03.260 performance to evaluate a company's operating performance. 02:03.380 --> 02:06.720 You can use some profitability and efficiency ratios. 02:06.980 --> 02:12.320 Then you can compare its ratio values with that of its competitors and the industry average. 02:12.680 --> 02:17.540 If the company you're evaluating maintains a better and more efficient operating performance than its 02:17.540 --> 02:20.210 competitors it's clearly the winner. 02:20.210 --> 02:23.590 And you can expect that it will survive in the next decades. 02:24.320 --> 02:29.550 In the next video I'll give you a complete list of economic moats that a company may have. 02:29.840 --> 02:34.690 And I'll also talk a little bit more about economic moats and why they're so important. 02:35.090 --> 02:35.630 OK. 02:35.690 --> 02:36.660 See you in the next video.