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The Financial Times Guide to Investing, 3rd Edition by Glen Arnold

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15

The competitive position of the firm1

Earlier (in the previous chapter) we dealt with identifying industries offering high returns on capital employed. However, identifying a good industry is only the first step. Investors need to seek out companies that beat the average rates of return on capital employed in a good industry. To beat the averages, companies need something special. That something special comes from the bundle of resources that the firm possesses. Most of the resources are ordinary. That is, they give the firm competitive parity. However, the firm may be able to exploit one or two extraordinary resources – those that give a competitive edge. An extraordinary resource is one which, when combined with other (ordinary) resources, ...

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