The Pros and Cons of Compounding

WHILE NO ONE REALLY KNOWS whether it was Albert Einstein who commented that compounding was the eighth wonder of the world, there is no denying that compounding returns can do wonders for an investor. A company compounding its topline growth at a faster rate can be a truly encouraging sign for an investor that his company is on a good growth trajectory, though that doesn’t necessarily mean that it is achieving growth profitably. For instance, on a 5-year CAGR basis, new-age company, Zomato, tops the list — it has notched up over ₹6,000 crore in losses during the same period. Similarly, PB Fintech, which runs the largest online platform for insurance and lending products, ranks third in sales growth, but has ratcheted up over ₹1,600 crore in losses. Fortune India research shows there are 40 companies which have compounded in the 20%-30% range, 17 companies above the 30% up to 50% range, and 10 companies over the 50% to 77% range.