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Define the term “barriers to entry.” Assume that you are analyzing a particular company for your...

Define the term “barriers to entry.” Assume that you are analyzing a particular company for your fundamental analysis project. Assume that the company has higher than average profit margins, given its financial risk. If that company is part of an industry with low barriers to entry, would you expect that company to continue to maintain its its high profit margins in the future? Explain.

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Barriers to entry are hinderances including economic, procedural, regulatory , technology among other factors that prevent the frim from taking up new investments or projects. If the company is a part of an industry with low barriers to entry, it may not be able to sustain the profits in the long term at least till the investment is recovered. The reason being irrespective of low barriers the barriers cannot be eliminated altogether. Also if the entry to barriers are low, the competition will be intense and the competitors will fight for the market share and profits making the firm earn normal profits only over a long term.

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