In a normal market, high profits attract competitors until the profits are gone. An economic moat is whatever stops that happening: a brand people pay more for, a network that gets more useful the bigger it is, costs a newcomer can't match, customers who find it painful to switch, or a licence nobody else can get. Each is a competitive advantage that lasts.
The evidence people point to is return on capital — the profit earned on the money tied up in the business — staying high for years, well above what the company pays to raise that money. But a high return shows a moat existed; it doesn't prove one will last, which is why investors argue about moats rather than measure them. A holding's detail shows ROIC, worked out from the latest annual report, next to return on equity, a close relative that borrowing can flatter. One year is a snapshot; a moat shows up as the same high figure year after year in the company's reports.
The moat is the "unless".
Educational content only. It is not personal financial advice.