Investing Guide · Chapter 3
Unveiling the Big Five: Unlocking Business Success
Discover the five critical financial metrics that signal business strength.
The Big Five are critical financial metrics that signal whether a company possesses a competitive moat. All should meet or exceed 10% annually over a 10-year period.
The Big Five Metrics
- ROIC (Return on Investment Capital): Measures how efficiently management deploys capital. If a lemonade stand invests $200 and makes $100 in profit, its ROIC is 50%.
- Sales Growth Rate: Revenue growth of 10%+ annually indicates business strength
- EPS Growth Rate: Earnings per share growth of 10%+ shows profitability expansion
- BVPS Growth Rate: Book value per share growth exceeding 10% demonstrates asset accumulation
- FCF Growth Rate: Free cash flow growth of 10%+ indicates sustainable cash generation
The 10% Benchmark
All Big Five metrics should meet or exceed 10% annually over a 10-year period to demonstrate genuine competitive strength.
ROIC Priority
ROIC is the most important metric. Robust ROIC above 10% per year for the last 10 years typically signals significant competitive advantages and quality management aligned with shareholder interests.
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