Step 3 of 8

Business Quality & Moat

Is step mein hum check karte hain — kya company ke paas koi durable competitive advantage (Economic Moat) hai? High ROCE, superior ROIC aur stable Operating Margins batate hain ki company apne competitors se zyada profitable hai aur pricing power rakhti hai.

~800 Stocks Step 2 ke baad
~300 Survive Quality filter ke baad
High Moat Compounding machines
Economic Moat kya hota hai? Warren Buffett ne ye concept mashhoor kiya — jaise purane zamane ke kile ke charon taraf ek paani ki gehri khaai (moat) hoti thi jo dushmano ko aane se rokti thi, waise hi ek strong brand, network effect ya cost advantage competitors ko aapka profit chhinne se rokta hai.
ROCE — Return on Capital Employed
Quality Metric · Investor's Favorite
Step 3.1
1. Ye kya hai? (What is it?)

ROCE batata hai — company ne business mein lagaye gaye har ₹100 ke total capital (Equity + Debt) par kitne rupaye ka operating profit kamaya?

Formula: ROCE = EBIT (Operating Profit) ÷ Capital Employed × 100
Capital Employed = Total Assets − Current Liabilities

Agar aapne kisi business mein ₹10 Lakh lagaye aur saal mein ₹2.5 Lakh ka profit banaya, toh aapka ROCE = 25% hua! Jo company bina loan badhaye high ROCE generate karti hai, wahi asli wealth create karti hai.

2. Asli Indian Example

Asian Paints / Titan / Pidilite: Inka 10-year average ROCE 30% se 40%+ rehta hai! Kyunki inke brands itne strong hain ki customers inke products par premium price dete hain.

Doosri taraf, ek commodity steel ya textile company ka ROCE sirf 6%–10% hota hai kyunki wahan pricing power nahi hoti.

3. Screener mein kaise dekhein?
Screener.in Query:
Return on capital employed > 15 AND Return on capital employed 5Years > 15
4. Ideal Range
ROCE > 25%: Exceptional Moat ROCE 15% – 25%: High Quality ROCE 10% – 15%: Average ROCE < 10%: Value Destruction — Avoid
ROIC vs WACC (Return on Invested Capital)
Institutional Standard · Economic Value Added
Step 3.2
1. Ye kya hai? (What is it?)

ROIC: NOPAT (Net Operating Profit After Tax) ÷ Invested Capital × 100.
WACC: Weighted Average Cost of Capital (yaani capital raise karne ka kharcha, usually 10-12% in India).

The Golden Rule of Investing:
• ROIC > WACC: Company har saal shareholder ke liye real wealth create kar rahi hai.
• ROIC < WACC: Company jitna grow karegi, utna shareholder value destroy hoga!

4. Ideal Range
ROIC > 20%: Compounding Machine ROIC 15% – 20%: Strong Value Creator ROIC < Cost of Capital: Avoid
Operating Profit Margin (OPM) & Gross Margin
Pricing Power & Margin Stability
Step 3.3
1. Ye kya hai? (What is it?)

OPM = Operating Profit ÷ Sales × 100
Har ₹100 ki sale par operations ke baad kitna profit bachta hai?

Margin Stability check karein: Jo company inflation ke dauran bhi apne margins maintain ya expand kar leti hai, uske paas genuine Pricing Power hoti hai.

4. Ideal Range
OPM > 20%: Strong Pricing Power OPM 12% – 20%: Healthy OPM < 8% & Declining: Margin Squeeze Risk
Step 3 Quality Screener Query
Screener.in — Step 3 Business Quality Query
Market Capitalization > 500 AND Debt to equity < 1 AND Return on capital employed > 15 AND Return on equity > 15 AND Operating profit margin > 12