Great post Sir! I was reminded of the concept of moats while reading this post. The concept has stuck with me because it came with a visual thought of an actual moat around a castle.
Sir as always excellent post. I tried to do some visual thinking on the “tradeoffs between margins and capital turns can change the value of a firm over time” sentence.
Here’s what i have come up with –
Imagine the company as a helicopter. Helicopters come in different weights for different purposes. But the main characteristic are the rotor blades which “lift” the copter.
The faster these blades spin ( RPM ) the higher the copter goes.
However, the length of the blades matter. Longer blades spinning at higher RPMs mean that the copter can go the furthest.
Shorter blades would require a very high RPM and longer blades would require a lesser RPM to essentially go the same distance.
As you may guessed by now. RPM are “capital turns”, blade length is the “margin” & the weight of the copter is the “asset heaviness”
Assuming there is a limit to how long a blade can be and how fast it can spin would mean there is a theoretical limit to how “asset heavy” a copter can be.
If the copter is any heavier than the combination of blade length and RPM then its not going go very far. If its not possible to jettison any “extra weight” then the copter will have to look to increase the RPM or the length of the blade.
If there is no way to increase RPM or blade length then to just get off the ground the copter will have to find ways to lose weight ( become asset light )
Am i making sense sir? 🙂
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