Three-Pronged Framework to Identify the Best Compounders

Unmatched market leadership, unmatched ROIIC, and longevity of high cash IRRs

Hi fellow Tortoise!

Welcome to another bi-weekly presentation! In this episode, we’ll highlight:

• Three recent earnings reports from our portfolio companies;

• Why we like companies that benefit from a growing installed base;

  

• Finally, we share our three-pronged framework to identify the best compounders. This relatively simple, yet highly effective, approach simplifies the core principle of sustained quality compounding: longevity. Oftentimes, people will look at ROIC, which by itself is a useless and non-nuanced. It’s all about the returns on incremental invested capital.

• We’ve talked about the flaws of ROIC before, but this weekend’s webinar made it more tangible why ROIIC and true cash IRR are way more important than looking at ROIC. ROIC is a rolling number based on current profits, while reported tangible invested capital is shown at historical cost and adjusted for depreciation. Following a period of high inflation, relying on ROIC makes us jump to the wrong conclusions.

The presentation can be watched below, including the downloadable transcript and slides.