A. One of the most important skills to learn in managerial economics is the ability to identify a good business. Discuss at least four characteristics of a good business.
Based on the article about Coca-Cola, there are five essential characteristics of a business for it to be considered as a “Good Business”. First, it should be appealing to both young and old alike. Second, it must have a distinct characteristic which cannot be easily imitated by others. Third, it must already made an impact to the market because it has already earned a large portion of market share. Fourth, profit margin and rates of return should be high. And Lastly, it must have a competitive advantage or economic moat.
Appealing to both young and old alike. The product that the company sells / offers can be used or consumed by people of all ages. It must be enjoyed not only by selected markets rather it should be enjoyed by all.
Distinct characteristic which cannot be easily imitated by others. The product that the company sells / offers must be unique and exceptional. It must safeguard it’s “secret ingredients”. So that it cannot be easily imitated by others.
Large portion of market share. The product that the company sells / offers is used or consumed by a large portion of the market and must be preferred above other companies who are in the same line of business.
A good business must able to deploy a lot of incremental capital at an above average rate of return for a long time. If a business is able to do that, it will in effect be helping its shareholders compound their money at a good rate of return and saving them the trouble of having to invest the extra dividends they would have received if the company didn’t reinvest in its operations.
A durable competitive advantage or economic moat is what sets apart the good and great companies from the mediocre and downright lousy companies. A significant competitive advantage allows a company to earn better than average profits or maybe even excellent profits, and protects the company’s profits from competitors that want to get a piece of the action. A strong brand, being the low-cost producer, patents, and having a near monopoly over a certain market are some sources of competitive advantage.
B. Identify and talk about at least four companies that you regard as having the characteristics listed here.
Apple Company – This popular company is the brain behind gadgets like iPod, iPad, iPhone, and MacBooks. Their products are user-friendly and can easily be used by people both young and old. Also, Apple always sees to it that their products offer unique features which suit the people’s wants and needs enabling the people to patronize their products; thus in return, earning a large portion of market share compared to other competitors.
SM Investments Corporation – This is composed group of companies: Retail, Mall Operations, Property, and Banking & Finance.
RETAIL – SM is the Philippines’ most dominant player in retail with 193 stores nationwide. Of these, 46 are SM Department Stores; 37 are SM Supermarkets, 76 are SaveMore branches; and 34 are SM Hypermarkets.
MALL OPERATIONS – SM is the Philippines’ largest shopping mall developer and operator with 46 malls nationwide. SM Prime also owns 4 malls in China’s second and third-tier cities, namely Xiamen, Jinjiang, Chengdu, and Suzhou. By the end of 2012, SM Prime will have a total of 46 malls in the Philippines and five in China with a combined GFA of 6.3 mn sqm.
PROPERTY – SM’s property group is a fast emerging business with interests in residential, commercial, leisure and hotel development.SMDC is rapidly growing with 15 residential projects under its SM Residences and two projects under its M Place brand.
BANKING & FINANCE – SM’s bank network is the largest in the Philippines with its 41% interest in BDO Unibank and 20% interest in China Banking Corp. In 2Q 2012, BDO became the country’s largest bank in terms of assets with 744 branches nationwide. Chinabank is the 8th largest with 307 branches nationwide.
ABS-CBN – is a major Filipino commercial television network owned and operated by the Filipino media conglomerate ABS-CBN Corporation, a publicly traded company. It is the country’s leading television network with an advertising revenue amounted to 17.5 billion pesos for the fiscal year 2011
San Miguel Corporation – is Southeast Asia’s largest publicly listed food, beverage and packaging company with over 17,000 employees in over 100 major facilities throughout the Asia-Pacific region. San Miguel carries many brand names in the Philippine food and beverage industry, including San Miguel Pale Pilsen, Ginebra San Miguel, Monterey, Magnolia, and Purefoods. San Miguel Beer is one of the largest selling beers and among the top ten selling beer brands in the world. SMC manufacturing operations extend beyond its home market to Hong Kong, China, Indonesia, Vietnam, Thailand, Malaysia and Australia; and its products are exported to 60 markets around the world.
C. Suppose you bought common stock in each of the four companies identifies here. Three years from now, how would you know if your analysis was correct? What would convince you that your analysis was wrong?
Supposing I bought common stock in each of the four companies indentified above; three years from now, I would know that my analyses were correct by simply looking back and evaluating if the company still suffice the list of characteristics of a good business. I will be convinced that my analyses were wrong if it will not suffice even just one of the characteristics listed for it to be considered as a “good business”.
Courtney from Study Moose
Hi there, would you like to get such a paper? How about receiving a customized one? Check it out https://goo.gl/3TYhaX