When we analyze companies at Morningstar to estimate the equity's intrinsic value, the most important step involves identifying economic moats, or structural barriers that protect companies from competition.
What makes a moat? Our analysts look for companies whose returns on invested capital are likely to exceed its weighted average cost of capital in the future. We also look for firms that appear to have at least one of the five sources of sustainable competitive advantage (intangible assets, cost advantage, switching costs, network effect, or efficient scale).
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Karen Wallace does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.