For me, ROE is the key “engine” of compounding. A company with consistently high ROE and limited leverage shows strong underlying economics. Still, valuation matters — buying even the best business at the wrong PE can lead to weak returns. I see ROE as measuring business quality, while PE tells me how much I’m paying.
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.
@Tiger_comments @TigerStars
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