Quality & Compounders
Parag Parikh ROIC + CFO Screen is a Quality & Compounders screen. It checks every NSE-listed stock against 2 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.
The Parag Parikh Financial Advisory Services investment philosophy, developed by Parag Parikh and continued under Rajeev Thakkar, centres on a deceptively simple question: how much cash does the business actually generate per rupee of all capital committed to it, after paying taxes? ROIC — PAT divided by the sum of equity and long-term debt — is the cleanest answer, because it uses after-tax profit (capturing real shareholder economics) and includes all permanent capital (penalising debt-funded growth equitably). This distinguishes it from ROCE, which uses pre-tax EBIT and understates the tax drag on capital-intensive businesses. The second filter is operating cash flow: accounting profits can be engineered over any single period through accruals, but a business that consistently converts earnings to cash and grows that cash flow is demonstrably real. The current ratio guard above 1.5 is the liquidity floor — businesses that are ROIC-efficient but cash-poor at the wrong time can destroy years of compounding in a single liquidity event.
A stock must satisfy every condition below. Conditions are grouped under the pillar they test.
ROIC Quality
Cash Flow Quality
Balance Sheet Liquidity
Described in the philosophy; not a pass/fail condition in the current rule
Hard excludes
Ranked by ROIC, highest first.
Return on Invested Capital (%)
PAT_latest / (shareholders_equity + long_term_borrowings) * 100, using latest annual balance sheet and income statement. Note: ROIC ≠ ROCE. ROIC uses PAT (after-tax). ROCE uses EBIT (pre-tax). Both divide by (equity + long-term debt), but the numerator difference is material for high-tax or loss-carryforward businesses.
High is better
CFO Year-on-Year Growth (%)
(cfo_latest_yr - cfo_prior_yr) / abs(cfo_prior_yr) * 100, where CFO is net cash from operating activities from the cash flow statement. When cfo_prior_yr is negative, this metric is undefined — such companies fail the cash quality pillar automatically.
Must be positive (i.e., CFO is growing). A business with strong ROIC whose operating cash flow is declining is either cycling through a temporary collection squeeze or beginning to show fundamental working capital stress. This metric flags the latter early, before it shows up in profit figures.
High is better
CFO — Latest Year (₹ Cr)
Net cash flow from operating activities for the most recent completed financial year, in crores.
High is better
Current Ratio
current_assets / current_liabilities, using latest balance sheet values. Not applicable to banks and NBFCs where current/non-current distinction is not meaningful.
High 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.
Not yet testable — 0 of 6 points needed to chart a rolling information coefficient.
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