Wednesday 8 October 2008

Identifying the Commodity Type Businesses

Commodity type businesses have the following characteristics:

  • Low profit margins on sales coupled with low inventory turnover
  • Low returns on shareholders' equity
  • Absence of any brand loyalty
  • Presence of multiple producers
  • Existence of substantial excess production capacity in the industry
  • Erratic profits
  • Profitability that is almost entirely dependent upon management's abilities to efficiently utilise tangible assets.

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