ABV Economic & Industry Analysis Flashcards
6 cards from real ABV practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 ABV Economic & Industry Analysis flashcards as text
What is the term for a company's durable competitive advantage that allows it to earn above-normal returns over time?
Answer: Economic moat
An 'economic moat,' popularized by Warren Buffett, describes structural advantages (brand, patents, network effects) that protect a company's profitability.
How does benchmarking a subject company against industry peers benefit the valuation engagement?
Answer: It identifies where the subject company's performance differs from industry norms, informing risk and growth assumptions
Benchmarking reveals whether the subject company outperforms or lags peers, which informs both the selection of risk premiums and terminal growth rates.
Which analytical tool examines a company's internal strengths and weaknesses alongside external opportunities and threats?
Answer: SWOT analysis
SWOT analysis organizes qualitative strategic factors into four quadrants, helping valuators assess competitive positioning and future performance drivers.
When a subject company holds a dominant market share in a niche market, how might this affect its valuation under the income approach?
Answer: It may support a lower discount rate and higher growth rate due to demonstrated competitive strength
Dominant market share often signals pricing power and barriers to entry, which can justify a reduced risk premium and stronger growth assumption.
In a business valuation, which aspect of competitive position analysis would most directly affect the terminal growth rate assumption?
Answer: The sustainability of the company's competitive advantages relative to its industry growth outlook
The terminal growth rate is anchored to long-run sustainable growth, which depends on whether the company's competitive advantages can persist.
What is the primary valuation implication of an industry facing significant technological disruption?
Answer: Elevated risk premiums and potentially compressed growth assumptions for incumbent companies
Technological disruption increases obsolescence risk for incumbents, warranting higher discount rates and more conservative forecasts in the income approach.