Financial analysis defines characteristics of quality companies

Financial analysts define "quality companies" through specific measurable criteria, including Return on Invested Capital (ROIC), profitability, value-creating growth, and risk management. Companies such as Atlas Copco, Novo Nordisk, and Visa are frequently cited as examples within this category.

A key indicator of a quality company is a consistent ROIC above 15 percent over a decade, which signals pricing power and structural advantages. Additionally, a free cash flow conversion rate exceeding 90 percent helps confirm that reported profits are actual cash rather than accounting constructs.

Sustainability in these companies is driven by "economic moats"—competitive advantages that protect market share and margins. These moats include cost advantages, intangible assets like brands or patents, network effects, switching costs, and scalability. Martin Björsell of Nordea Private Banking notes that quality companies have historically maintained earnings better during economic downturns compared to growth or value stocks. On the Swedish market, Atlas Copco, Alfa Laval, and Hexagon are frequently mentioned as clear examples.