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Fundamentally, there are only two drivers of business value. The ability to generate returns on capital in excess of cost of capital, and the ability to grow. A thread breaking down these two elements 👇
#NotesFromMySlipbox
#NotesFromMySlipbox
In theory, in the long run, in the absence of moats, returns on capital will reduce to cost of capital. But in reality, many businesses manage to generate high returns for long periods of time. How do they do this?
If we just look at the problem mechanically, or from an accounting lens, we see that return ratios can be improved by:
