Value investing · Course 6 of 39 · Judging a business
Business models and moats
How a business makes money and what protects it: unit economics, operating leverage, industry structure, moats, pricing power and the capital cycle.
For a reader who can already read the statements and now wants to know why the numbers are what they are. The statements say what happened; this course says why, which is what a thesis has to be about.
You start with one unit of a business, its price, cost and contribution, then add fixed costs and operating leverage, the five forces that set an industry's returns, what an economic moat has to show up as in the accounts, how to find pricing power in a filing, and the capital cycle that wears high returns down. The last lesson asks how long an advantage can last.
After it you can read a company's margins and returns back to the way it makes money, and name what protects them or wears them down.
It assumes Reading financial statements and Quality and returns.
The test, not the verdict
Business models and moats is 7 lessons on the tests and where their lines sit. Whether a company you hold clears one of them is a separate question that needs its filings read, and nothing on these pages has read them.
See our methodology for how the product reads a filing and what it refuses to compute.