High ROCE
Return on capital employed comfortably above 20 percent, sustained across the cycle. Smith treats ROCE as the single most diagnostic metric for a quality compounder.
Definition
What is the Smith-Fit Score?
The Smith-Fit Score is a 0 to 100 grade for how closely a stock fits Terry Smith's Fundsmith framework: high ROCE, high gross margin, low capital intensity, and growing free-cash-flow conversion. invest-like computes it for every US-listed stock.
Last reviewed:
Short answer
Smith-Fit grades a stock from 0 to 100 against the quality framework Terry Smith uses at Fundsmith and documented in his annual letters: return on capital employed above 20 percent, gross margin above 40 percent, capex below depreciation in the steady state, and free cash flow that converts reported earnings into actual distributable cash. The headline number is the equal-weight blend of the pillars, mapped to an A+ to D grade ladder. Educational fit assessment, never advice.
How the Smith-Fit Score is calculated
Daily fundamentals feed each pillar. The ROCE check uses a cycle-average, the cash-conversion check spans the most recent five years to dampen working-capital noise. Each pillar produces a 0 to 100 sub-score with one paragraph of LLM-generated reasoning. Sub-scores blend equally into the headline grade.
High gross margin
Gross margin above 40 percent, ideally above 60 percent. Pricing power and product differentiation rather than scale-driven cost advantage.
Low capital intensity
Modest fixed-asset base and capex below depreciation in the steady state. Cash compounds back to shareholders rather than disappearing into plant and equipment.
Growing FCF conversion
Free cash flow tracking or exceeding reported earnings. Working-capital growth contained and not concealing earnings quality problems.
Why Smith-Fit matters
Terry Smith launched Fundsmith in 2010 with a simple brief: buy good companies, do not overpay, do nothing. The framework is the most recent of the seven invest-like applies and surfaces consumer-staples, asset-light tech, and franchise businesses other lenses underweight.
The full 7-framework methodology lives at /methodology/ with the cross-framework consensus rules and the backtested track record.
Related
- Seven-framework methodology hub - how Smith-Fit sits alongside the other six value-investing frameworks invest-like scores every stock against.
- Top Smith-fit stocks today - the live ranking of US-listed stocks scoring highest on Terry Smith's quality-growth-pay-a-reasonable-price screen.
- Cross-framework working papers - evidence on how Fundsmith-style quality screens perform across decades of US-listed equity data.
See the Smith-Fit grade for any stock
Every verdict page on invest-like shows Smith-Fit next to the other six framework grades.
Educational only. invest-like is not a registered investment adviser; nothing here is personalised investment advice. Always do your own research and consider your individual circumstances.