Asset growth discipline
What it measures¶
Asset growth is how much a company's total assets — everything it owns — grew over the latest fiscal year, as a percentage of the assets a year earlier. This check asks: did assets grow by 10% or less? Faster growth still passes when the company earns more on its capital than that capital costs: when ROIC (return on invested capital — operating profit after tax divided by the money invested in the business) is above WACC (the weighted average cost of capital — the return its lenders and owners require).
Why it is on the page¶
Eugene Fama and Kenneth French found that, on average, companies that grew their assets fastest delivered weaker results to their owners afterwards; they made low asset growth one of the five factors of their widely used model. Expanding quickly is only a sign of strength when the new assets earn more than they cost — which is why the exception exists.
Thresholds, their source and the population they were fitted on¶
| Result | When |
|---|---|
| ✓ passed | total assets grew 10% or less in the year |
| ✓ passed | they grew more than 10%, and ROIC is above the sector's cost of capital |
| ✕ failed | they grew more than 10% and ROIC is at or below the cost of capital |
| ○ not evaluable | total assets of either year are not stored; or growth was above 10% and no sector cost of capital is known |
- Source: Fama and French, the investment factor of their five-factor model; the sixth of James Montier's warning flags uses the same 10% line.
- Fitted on: US companies, 1963–2013 (Fama and French); US and European companies, 1993–2007 (Montier).
- Evidence grade: peer-reviewed and replicated (the effect); practitioner convention (the 10% line).
- Basis: absolute.
A worked example¶
Honeywell International, fiscal year 2025 (statements stored on 25 October 2026): total assets shrank by 2.0% — within the line — passed.
An illustration, not a stored figure: a company whose assets grew 25% in a year passes only if its return on invested capital beats its sector's cost of capital; with ROIC at 7% against a cost of 9%, it fails.
What “No verdict” means here¶
The check is not evaluable when the total assets of either year are missing, or when assets grew more than 10% and no sector benchmark is stored to give the cost of capital — Meta Platforms read not evaluable — the sector WACC (no sector benchmark) for that reason. The check then leaves the area's count.
What the verdict is and is not¶
A pass says the company's asset base did not grow faster than the line, or did so while earning more than its capital costs. A large acquisition can make one year fail on its own. It is not a forecast and not an instruction to trade the shares.