That said, I often give more weight to ROIC and free cash flow. ROIC reflects how efficiently a company uses all capital, not just equity, while free cash flow is the real money available to fund growth, dividends, or buybacks. Together, they provide a clearer picture of whether compounding is sustainable.
If I had to choose only one metric for a 10-year investment, I’d pick ROIC. It balances profitability with capital efficiency and avoids distortions from leverage. PE moves with sentiment, and ROE can be flattered, but high ROIC paired with steady cash flow growth gives me the most confidence in long-term compounding.
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