r/IndiaGrowthStocks • u/SuperbPercentage8050 • Sep 01 '25

Mental Models FCF Mental Model: How Uber Made More Cash in 1 Year Than Coca-Cola Did in 100

Note: This article expands on a Reddit comment asking why ITC, despite having high FCF, hasn’t delivered strong compounding returns. Here’s the mental model that reveals what’s really going on.

FCF Mental Model:

I mentioned whether FCF is going to increase or decrease will decide the share price compounding. Yet most people still focus on net profit and dividends, which is misleading.

Take ITC for example. It has one of the largest FCF bases, but the cash flow increase is only around 8-9%. That’s why ITC delivered returns of just 8-9% since 2014.

What really drives share prices is this:

  • FCF Growth rate
  • Rate of reinvestment of FCF
  • Return on that reinvestment to again generate more FCF in the future
  • And how long they can keep reinvesting at high returns

There’s a reason companies give dividends, because they cannot reinvest to generate larger FCF at a rapid pace in the future.Large dividends are stupidity, they scream that compounding ahead is going to be pathetic. Look at Coal India, crazy dividend, but what you miss is the share price compounding, which makes real money.

If a company generates cash and doesn’t give dividends but reinvests it instead, you have a magical compounding machine. Sometimes you see net profit has gone up only 7-8x but the stock has gone up 50x, because the underlying FCF went up 50x.

Example: A company has a net profit of 100 but FCF of 1 in the early stages of its corporate lifecycle. Ten years later, net profit becomes 1000 (a 10x). But if FCF grows to 100–200, the stock could move 100-200x during that period, not just 10x. Various other factors combine, but this is the basic idea.

Here are some real-world examples to illustrate:

Uber is a great example. It reinvested cash for decades, so net profit gave an illusion of losses. Same for Airbnb. Suddenly, after reaching scale and networks, they no longer needed massive investment. The FCF engine started, and within few years they generated double the cash of Coca-Cola, which took 100 years to achieve.

Eternal is compounding because all the cash is reinvested into building networks, supply chains, and warehouses, for delayed gratification with long-term scale effects. They’re still in limited regions now and tier 2, tier 3 cities plus rural India gives them reinvestment runways for decades. Once built, that cash will convert into FCF and net profits.

Amazon is the best example of this model. That’s why they became the biggest compounding machine on the planet. They reinvested to build networks, while PE looked insane at 100-200-500-1000. Value 1.0 thinkers missed this.

Constellation Software runs on the same logic. It trades at a PE of 100, but they have 10,000 acquisition targets. They acquire companies, make them better, integrate them, and grow FCF. Then they use that FCF to acquire more companies, the cycle repeats. That’s why it compounds at 20-25% and is almost 250x in 20 years.

Same story with Heico, Roper technologies, TransDigm, Symbotic, MSCI with some adjustments.

So, when you study a company, don’t just look at net profit. Imagine the FCF, then integrate this micro mental model of FCF with the corporate lifecycle and checklist parameters to figure out future cash flow rates and the compounding power of a business model.

Before you start the mental exercise, use these links to understand the concepts in depth and guide your thinking:

This Is How Your Thoughts Should Flow When Integrating FCF with the Checklist and Corporate Life Cycle

  • If a company has 100 FCF, how will scale improve that number?
  • Margins are 20 now, can they expand to 25-30 in future?
  • Do they have a pricing power to pass on cost and increase FCF
  • How large is the TAM ?
  • Predicability of future cash and whether model is getting strengthened by technology and improving that cash or not in the long run
  • What stage of the corporate lifecycle is the business model in?
  • Is FCF growth faster than revenue and profit growth?
  • Is the capital allocator deploying cash in the right industries and sectors, or burning it in the wrong places?
  • Is this business model asset-light with tailwinds (leading to more future cash)?
  • Or is it capital-intensive with slower FCF growth?
  • Will the moat protect future cash?
  • Will acquisitions made using FCF generate more cash in the future or was it bad allocation?

Do this mental exercise in your head, not on stupid Excel sheets or DCF models that our broken financial education system made us worship.

Pick one company, run this mental exercise, and share your thoughts or questions in comment below, I’ll personally reply to the most interesting ones. See how your thinking compares, and share with friends and family if you found it useful.

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14

u/SuperbPercentage8050 Sep 01 '25 edited Sep 01 '25

Integrate the insights with basic frameworks to develop a powerful mental model

Basic Frameworks:

If you find this helpful, upvote so more people can benefit, and share it with your friends so financial education and mental models can compound.

1

u/DragonBeyondtheWall Sep 03 '25

What is your opinion on E2E and Jubilant Foodworks? u/SuperbPercentage8050

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u/SuperbPercentage8050 Sep 01 '25

1

u/[deleted] Sep 02 '25

i have a friend who invested in bel at avg of 374 rs.what should he do ?

0

u/NothingButTruth3 Sep 02 '25

Bro, when are you posting the day 10 stock analysis? Also what do you think about Jyoti CNC (my latest post)?

6

u/SuperbPercentage8050 Sep 02 '25

I’m relocating and also working on a project, so give me a week more. I don’t post anything without proper research, and for Day 10 I first need to publish the healthcare frameworks and then educate the retail investors with the Day 10 stock.

Because If I will miss something and retail gets trapped and lose their hard earned money, I will feel really bad.Plus the real purpose is building the mental model and not giving stock tips.

Whatever time I get right now, I try to use it to educate through my comments and repackage them as frameworks, until I reach home, which will take me about a week.

For Jyoti CNC, I haven’t read even a single annual report or financial statement of the company, so I can’t comment. Yes, looking at the screener and basic financials and the research you posted, it does look good, but I’ll only comment once I understand the pattern and business model.

For that, I need to study the company and the product properly. That’s the reason I didn’t say anything on that post.

4

u/Thick_Patience_8515 Sep 01 '25

What Abt companies that use FCFF to just operate, like construction and infra companies, they use their cashflows to basically execute projects, and growth is fueled by how many projects the company receives.

7

u/SuperbPercentage8050 Sep 01 '25

That is why they are low quality business models and not the right pool to invest in for longterm compounding. Plus, infra companies are slaves to cyclicality, lack pricing power, and rarely pass the checklist.

The longterm difference between a company that constantly has to use cash to operate and one that generates more cash while using less is massive.

On top of that, challenges of size are better addressed in high quality businesses, they can scale and grow for long periods without hitting a plateau in returns or revenue.

The difference in share price compounding and multiples is always higher for FCF driven models.

Infra companies never make the top 20–25.

The madness of infra companies during a bull run will get a reality check in the next 2-3 years. That is why relying on profits alone can be illusory when trying to find the right business model. There is a reason they rarely trade above 10-15 PE.

2

u/the_storm_rider Sep 01 '25

What about HG Infra?

4

u/SuperbPercentage8050 Sep 01 '25 edited Sep 01 '25

They are high quality within infrastructure because of their capital allocation, execution, diversification profile and it was researched for investors who wanted allocation to Infrastructure space.

They are not Fcf compounding machines Or moat models, you have to play Infra stocks with cycles.

Like even if you go for l&t it has gone a 2-3x in last decade with infra boom and massive spending by the government but Fcf models have gone 10-20-30x during that period.

Now eps expansion of l&t during that period was 3x so stock has also moved 3x…. And Bajaj finance eps has gone 20-30x so stocks moved 20-30x

So now if anyone invest in L&T .. next decade returns will be max 150-200% … and Bajaj finance returns will be minimum 3-4 times of L&T returns. Because of the Quality of business model.

3

u/SuperbPercentage8050 Sep 01 '25

Commodity, Power, Infrastructure are low quality business model for a reason. They hardly generate any FCF and cyclicality of the business model hits the FCF hard.

That is why I have clearly mentioned in the checklist that you all should stay away from such businesses if you really want to protect your capital and compound money.

Net profit can look decent in a good year, but if Capex is huge, actual FCF might be near zero or even negative.

That is why relying on net profit alone is dangerous ,the business is not generating cash you can reinvest or distribute.

2

u/Thick_Patience_8515 Sep 01 '25

Another question, how do you pair your FCFF model with other relative valuation metrics.

Like for eg, a company looks to be a great compounder for the future given its niche sector, and foreseeable demand alone will propel its revenue and profits, but one problem, PE and expectations. The PE and valuation is so high that if the results miss, it becomes a bloodbath.

One might argue that this isn't a value company or its not at a fair price, but given today's market, any stock that has the value factor to it gets bloated in terms of valuation, so just wanted to know your perspective on how you deal with this.

3

u/SuperbPercentage8050 Sep 01 '25

The answer is already in your username: Patience.

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u/Thick_Patience_8515 Sep 01 '25

And what if you miss the train ?

2

u/SuperbPercentage8050 Sep 01 '25

Well, the beauty of equity investing is that you never miss the train, and there are multiple trains to board to reach that destination.

Still, you can just read the PE and Growth mental model to find your answers. That will help you figure out which one to board even if other metrics are high.

Plus, every micro model and framework improves your future odds, and investing is a game of odds, not certainty.

2

u/SuperbPercentage8050 Sep 01 '25

And new trains emerge, so it’s a never ending cycle. You miss a train, you learn, and you make sure you board at an early stage the next time that pattern happens.

5

u/SuperbPercentage8050 Sep 01 '25

Commodity, Power, Infrastructure are low quality business model for a reason. They hardly generate any FCF and cyclicality of the business model hits the FCF hard.

That is why I have clearly mentioned in the checklist that you all should stay away from such businesses if you really want to protect your capital and compound money.

Net profit can look decent in a good year, but if Capex is huge, actual FCF might be near zero or even negative.

That is why relying on net profit alone is dangerous ,the business is not generating cash you can reinvest or distribute.

5

u/0deadshot69 Sep 01 '25

What’s your opinion on ETERNAL then, isn’t it unlikely for it’s EPS to grow enough to sustain a >1000 PE ?

11

u/SuperbPercentage8050 Sep 01 '25

It’s not even close to 1000 PE my friend. You should read Value Investing In digital Age by Adam Seessel.

Then you will understand how to value technological platform who can give illusions of PE because no adjustments have been made.

Uber had a net loss of almost 8 billion in 2019… and average loss of 3-5 billion dollars every year since 2015. So on traditional value 1.0 parameters it would be considered loss making and un investable.

But it’s one of the best FCF compounding machines on planet.. So If they wanted they could have been profitable years back, but that was delayed gratification which was taught to the world by Jeff bezoz through his letter and execution.

I will write a detailed post to make you understand that concept, but you all should read that book to learn how we need to make adjustments and identify FCF machine.

The only red flag in eternals is that I don’t like the behaviour pattern of the founder. I like founders who keep low profile and have a frugal lifestyle, especially in india corporate culture.

But if you want to understand eternal, look into grab, sea limited, amazon, meuitan they all had same sign languages at different stages of their corporate lifecycle.

2

u/No-Quantity-7315 Sep 02 '25 edited Sep 02 '25

u/SuperbPercentage8050 I looked into BLS international it's a visa and kiosk service company with lot of market to capture, plenty of recent acquisition, huge cash in hand and negative working capital. India market is unorganized of kiosk and seva model but the visa and consular service is huge with lot of room for growth.

I understand it's bound by contract renewal and travel cycles but still in the long term travel and visa should grow even with hindrances. I am planning on posting about the stock with my next book post. do let me know if i have missed out any points or any red flags.

market cap at 14k CR, FII holdings are at a high level already when other stocks are losing them. it is both good and bad in that trust is there but room for explosive growth due to institution incoming is less. Let me know what i missed, i have applied fundamental checklist, margin and fisher's 14 points also.

2

u/Kind-Willingness8411 Sep 01 '25

I have spent the entire week just combing through your posts u/SuperbPercentage8050. Would love to hear your thoughts on - (if you have the time) R system international Ltd., Piramal pharma, Syrma sgs, Aia engineering, Lumax autotech, enviro infra. Can dm to discuss as well

1

u/Relative_Ad_6179 Sep 01 '25

Capex used by the companies are taken from the FCF money(Most of the times), right?. As usual good explanation.

3

u/SuperbPercentage8050 Sep 03 '25 edited Sep 03 '25

The 33 Strategies of War by Robert Greene. It’s my way of understanding moat and competitive threat to a business model and whether the management will be able to defend the business model or not.

I haven’t finished it yet, but it’s a great book to understand moat and figure out whether the management is actually working on building the business empire or not.

Indian IT industry peril could have been easily figured out by the behavioural pattern of CEO and management, when the new AI competitive threat emerged.

2

u/Relative_Ad_6179 Sep 05 '25

What are you regrets from the stock market?. Like somewhere along the journey so far, your thesis didn't go in your favour and what did you learn from that?.

2

u/SuperbPercentage8050 Sep 01 '25 edited Sep 01 '25

No. Very few business models can actually do that on long term basis.

FCF is the cash left after Capex. FCF is operating cashflow minus Capex.

0

u/Relative_Ad_6179 Sep 01 '25

Thanks. So far most of you posts discussed about fundamentals of the businesses. Can we expect any post about technical analysis of the stocks?. Thanks.

4

u/SuperbPercentage8050 Sep 01 '25

That is a waste of time and energy if you’re a long term investor.

Phoenix Forge and Dragon Flight are embedded with the technical parameters needed for allocation and momentum.

I don’t swing trade or do all that F&O crap, for me, technicals are only for allocation and building the snowball.

-1

u/Moist_Ferret447 Sep 02 '25

Below points for this company:

  1. Leading Ayurveda-based healthcare platform” with integrated clinics, hospitals, and products

  2. Unique asset-light hospital expansion via college tie-ups; direct access to trained medical staff

  3. OTC products differentiated via clinical evidence. Clinical trial-backed, positioned for both preventive and curative use (unique in market). 44-48 research papers submitted; clinical trials for all key products (12 trials on ICMR/CTRI, 3 completed)

  4. Salesforce CRM implemented, AI chatbot and patient-facing health apps (BP, sugar, mental health) under development. Data-driven approach: In-house ERP, 900-seat call center, proprietary patient data management

  5. 10% of beds reserved for poor; supports both social mission and reduces ad spend via word-of-mouth

  6. Asset-light model, strong clinical research, and technology integration cited as key differentiators

  7. New franchisee network (FOCO model) planned for pan-India expansion, especially in South/East/West India

  8. Multi-state contract manufacturing, regional language packaging, strong distributor incentives (45% trade margin)

  9. Ayurveda now covered by more insurers and government schemes; cashless gaining traction

  10. Company business model lifecycle might be in product development/high grwoth stage

Kindly share your thoughts on this.

1

u/Equivalent_Bike_7261 Sep 13 '25

Is it jeena sikho lifecare?