IS COCA-COLA THE PERFECT BUSINESS?
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...