Reminder: Don't forget to look at the operating profit

You need profits to keep a business afloat. Just topline growth is not enough. Sounds like basic stuff. But in this era of growth at all costs, even the basics of business have to be reiterated.

And it's not just us who have contempt for this new norm of how businesses are assessed. In the recent Nasscom Technology and Leadership Forum 2023, NR Narayana Murthy, the Infosys co-founder, called this new culture promoted by venture capitalists obsessed with start-ups a "Ponzi scheme."

While we won't go as far as that, we want to remind our readers that they must focus equally on revenue and profits when evaluating a business. You can use our Stock Screener to easily filter out companies whose revenue and operating profit are moving in opposite directions.

To help our readers, we ran a screen ourselves. Here are some companies that have posted decent revenue growth in the last five years, but their operating profit growth has remained in red in the same period.

Here are the filters we used:

• Market cap of more than Rs 1,000 crore.
• Five-year revenue growth of more than 15 per cent.
• Five-year operating profit growth of less than 0 per cent.

Note: We got 14 companies after applying the filters. However, we have excluded banking, finance and insurance companies from our tables since their presentations differ from non-BFSI companies. More than the growth rate, quality of growth should be the focus for BFSI companies.

Also read: Efficiency kings on sale

This article was originally published on March 28, 2023.