The Big Five Numbers: How to Tell If a Business Is Great

Most investors drown in financial data, but you don’t need all of it to judge whether a business is great. Five growth rates do most of the work. Popularized in Phil Town’s “Rule #1” investing, the Big Five numbers are the fastest way to separate durable compounders from value traps.

What are the Big Five numbers?

The Big Five are the compounded annual growth rates of five fundamental metrics:

• Revenue (sales) growth — is the top line genuinely expanding?
• Earnings per share (EPS) growth — are profits growing per share?
• Equity (book value) growth — is the company building real net worth?
• Operating cash flow growth — is the business generating more cash?
• Free cash flow growth — is cash left over after reinvestment growing?

When all five grow consistently and at healthy rates, you are almost certainly looking at a high-quality, widening-moat business. When they diverge, that is a red flag worth investigating.

Why growth rates, not just totals

A single year tells you almost nothing. A great business shows consistency over time, which is why the Big Five are measured across 1, 3, 5, 7, and 10-year windows. Looking across windows also reveals the trend: is growth accelerating, steady, or quietly decaying?

What good looks like

As a rough rule of thumb, value investors like to see each of the Big Five compounding at 10% or more over the long term. Consistency matters more than a single spectacular year.

The red flag: when the Big Five disagree

The real power of the Big Five is in the gaps between them:

• Earnings up, free cash flow flat? Profits may be an accounting illusion not backed by real cash.
• Revenue up, equity flat? The company may be funding growth with debt rather than building value.
• Operating cash up, free cash flow down? Capital spending may be eating all the cash.

These divergences are exactly the value traps that a glance at the share price will never reveal.

See the Big Five for any stock instantly

Pulling ten years of five metrics and compounding them by hand is tedious and error-prone. Moatly calculates the Big Five compounded growth rates automatically across all five windows, then rolls them into a MOAT score.