Quality & Compounders
Gautam Baid Quality Compounder is a Quality & Compounders screen. It checks every NSE-listed stock against 4 conditions computed from nightly data, after excluding heavily pledged promoters and very small market caps. This page explains the rule, each figure and its source. It lists no stocks and is not advice.
Gautam Baid's 'The Joys of Compounding' argues that the majority of investors conflate a single good year with a durable business model. A genuinely compounding franchise earns >20% ROCE not once but consistently for many years — Baid's canonical test is five consecutive years above the threshold, which effectively eliminates cyclical businesses that look like compounders at the top of their cycle. The second insight is self-funded growth: a true compounder does not need to repeatedly raise equity or take on debt to fund its expansion; D/E below 0.5 and minimal share dilution signal a business whose operating cash flows are sufficient for reinvestment. Together these two filters — ROCE consistency and financial discipline — identify businesses with genuine competitive moats, because only a moat can sustain above-cost-of-capital returns across different economic conditions without needing perpetual external capital.
A stock must satisfy every condition below. Conditions are grouped under the pillar they test.
ROCE Consistency
Financial Discipline
Hard excludes
Ranked by EPS CAGR (5Y), highest first.
ROCE — Latest Year (%)
EBIT / (total_equity + long_term_borrowings + short_term_borrowings) * 100, using latest annual figures.
The current-year snapshot. By itself this is insufficient — a company in a cyclical boom can clear 20% ROCE in the upcycle and fall below it in the downcycle. This metric is read alongside roce_positive_streak_years to distinguish structural from cyclical ROCE.
High is better
Consecutive Years ROCE > 20%
Count of the most recent consecutive annual periods for which EBIT / (total_equity + long_term_borrowings + short_term_borrowings) > 0.20, counting backward from the latest year until the first year the threshold is not met.
High is better
Debt-to-Equity Ratio
(long_term_borrowings + short_term_borrowings) / total_shareholders_equity, using latest balance sheet values.
Must be below 0.5. A low D/E confirms the business can service its obligations comfortably and is not artificially inflating ROCE by deploying borrowed capital into marginally profitable assets. For financial sector companies this metric is not applicable — use capital adequacy ratios instead.
Low is better
5-Year Share Count Growth (%)
((shares_outstanding_latest / shares_outstanding_5yr_ago) - 1) * 100, where shares_outstanding is the weighted average diluted share count from the income statement.
Low is better
Type hypothetical values to see which conditions they satisfy. These are not real stocks and nothing here is stored.
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How many stocks pass if this threshold were set differently. Counts only; no stocks are named.
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We have not measured this screen yet, so there is no record to explain.
This is a historical, statistical measurement produced by FINOME TECHNOLOGIES PVT LTD's research harness on past data. It is not a prediction, and past results do not indicate future results. The universe is today's Nifty 500 constituents, so the sample is affected by survivorship bias. It describes how a screen's selections behaved in the past and does not constitute investment advice or a recommendation.
Rule version 1.0.0