Score overall fundamental health from growth, margins, cash flow, leverage, and returns
Answers how fundamentally healthy a stock is overall. It reads company financials (revenue growth, operating margin, free cash flow, debt-to-equity, return on equity) sourced from filings, scores each factor around a 50 baseline, and produces a 0-100 health score rated strong, neutral, weak, or high-risk. P/E and price-to-sales are shown for context but are not part of the score, and the score is not benchmarked against a sector median. It gives a uniform first read of reported fundamentals across your equity list, describing where each name stands rather than ranking which to act on.
A five-factor composite, and the clearest opportunity in this catalog to teach the DuPont decomposition.
THE FACTORS. Revenue growth, operating margin, free cash flow, debt-to-equity and return on equity, each scored around a 50 baseline.
RETURN ON EQUITY IS THE ONE THAT NEEDS UNPACKING. ROE is net income over shareholders' equity. Taken alone it is treated as a quality measure, and the DuPont decomposition (developed at DuPont in the 1920s) shows why that is only partly right. ROE factors exactly into three terms:
ROE = (net income / revenue) x (revenue / assets) x (assets / equity) = net margin x asset turnover x equity multiplier
The first is profitability, the second efficiency - and the THIRD IS LEVERAGE. A company can raise its ROE without improving the business at all, simply by funding more of its assets with debt. So a high ROE is either a good business, a levered one, or both, and ROE alone cannot say which. Return on ASSETS, or on invested capital, is the leverage-free version.
NOTE WHAT THAT IMPLIES FOR THIS COMPOSITE. It scores ROE and debt-to-equity separately, and leverage enters both - raising ROE while worsening the debt score. The two components partly offset within a single total, which is not wrong, but it means the total is less informative than the components, and a student should read the factors rather than the score.
THE OTHER FOUR, briefly. Revenue growth is the top line and says nothing about profitability. Operating margin is operating income over revenue - profitability before financing and tax, which makes it the cleanest cross-company comparison of the operating business. Free cash flow is cash generation after capital expenditure. Debt-to-equity is leverage.
WHAT THE ANALYSIS IS EXPLICIT ABOUT, and it deserves credit for saying so. P/E and price-to-sales are shown for CONTEXT and are not in the score - which is correct, because those are valuation measures rather than health measures, and mixing 'is this a good business' with 'is it cheap' into one number produces something that answers neither. And the score is NOT benchmarked against a sector median. That is the limitation to hold onto: margins, growth rates and leverage differ structurally by industry, so an unbenchmarked score partly measures which sector a company is in.
The 50 baseline, the weighting and the strong/neutral/weak/high-risk bands are our own convention.
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