How the quality points and the range are built
Inside Stocks answers two separate questions. How financially strong is a company? And how does the latest closing share price compare with its own valuation history? Both answers follow fixed, published rules. This page starts with the model in plain words; every rule and threshold follows below.
Rule set version 2.8.0 · grades as of 24 Oct 2026
The model in plain words
Company quality: 0 to 20 points
Four equally weighted grades for balance sheet, profitability, cash flow and growth, each from 0 to 5. Together they make at most 20 quality points. More points mean more of the published rules are met.
Share valuation: a historical range
Separately, a range shows where the share was usually valued in recent years and where the latest closing price sits against it. The range is not part of the points.
A financially strong company can be expensively valued. A price below its own range does not mean the share is attractive. That is why the two answers stand separately, and neither is a price target or a forecast.
The four grades
Each grade runs from 0 to 5 and is built from two or three figures from the latest annual report, for growth from up to five years. If a company has fewer than four fiscal years, for example after an IPO, it gets profitability, balance sheet and cash flow from the latest year. Growth, the consistency of free cash flow and the valuation range only come from four years, and with them a points total.
Balance sheet
How well the company can cover its financial obligations.
Measured by: Net debt to operating income · Current ratio
Example Microsoft: The company has $1.23 in current assets for every $1 of current liabilities.
Profitability
How effectively it turns revenue into operating profit.
Measured by: Operating margin · Return on equity
Example Microsoft: Of every $100 of revenue, $46.78 is left as operating profit.
Cash flow
How much cash remains after operating costs and investment.
Measured by: Free cash flow to revenue · Profit covered by cash flow · Free cash flow positive
Example Microsoft: Of every $100 of revenue, $20.19 is left as free cash flow, after operating costs and investment.
Growth
How quickly revenue and operating profit have increased.
Measured by: Revenue growth per year · Operating income per year
Example Microsoft: Revenue grew by 14.6% a year on average.
On each company page, the tile at the top calls quality “high” from 15 points, “moderate” from 10 and “low” below that. Each grade also gets a word: 5 very strong, 4 strong, 3 solid, 2 weak, 1 very weak.
One calculation, from figure to grade
Using Microsoft as an example, with figures from its latest report:
- Measured valueCurrent ratio: 1.23. The company has $1.23 in current assets for every $1 of current liabilities.
- RuleThe value is checked against five fixed thresholds. Each threshold reached is one point.1: ≥ 0.82: ≥ 1.03: ≥ 1.34: ≥ 1.85: ≥ 2.5 Reached: 2 of 5.
- Balance sheet gradeThe grade is the mean of its figures (Net debt to operating income 5 · Current ratio 2): (5 + 2) / 2 = 3.50, rounded half up to 4 of 5.
- Needed for the next thresholdCurrent ratio: at least 1.3 for threshold 3.
The historical valuation range
- For each of the last up to 10 fiscal years, the calculation shows how the market valued the company, for example as price divided by earnings per share.
- These years give a usual band: the lower and the upper quarter. Applied to the figures of the latest report, that gives a range in the share’s quote currency.
- The page shows whether the latest closing price sits below, within or above that range.
- The range is not an intrinsic value, not a fair value, not a price target and not a forecast. It only shows where the price sits relative to the same company’s past valuations. A price below the range usually fell for a reason the range does not know.
Where the figures come from and which companies are covered
- Company figures: from the annual reports companies file with the US Securities and Exchange Commission (forms 10-K, 20-F, 40-F), in their machine-readable form. No value is estimated, smoothed or taken from analysts.
- Prices: daily closing prices in the share’s quote currency, not converted. For all companies currently covered that is the US dollar; every company page states the currency next to each price.
- As of: grades from 24 Oct 2026. Every company page states its price date and the latest filing used.
Coverage explained
| In scope | 3,266 | US-listed companies (NYSE, Nasdaq, NYSE American, NYSE Arca, Cboe) that report both total assets and revenue to the SEC. |
| Of which analysed | 3,142 | With a usable data set of reports and prices. For 124 tickers the data could not be retrieved yet; they are missing until it can. |
| Complete grades | 2,409 | All four grades computable, so quality points from 0 to 20. |
| Incomplete grades | 712 | At least one but not all four grades. Almost all banks and insurers are here, as they get no cash flow grade. These companies have their own page. |
| Insufficient data | 21 | No usable machine-readable annual report, so no grade and no page of its own. |
3,142 = 2,409 + 712 + 21. 3,266 = 3,142 + 124.
What the analysis does and does not tell you
- Consistent, rule-based scoring, not a black box. The same figures always give the same grade, for you as for us. No language model and no manual judgement decides a result.
- Describes a state, not the future. No price targets, no estimated future earnings.
- No hidden assumptions. No model of cost of capital or discount rates whose result hinges on an assumption nobody can check.
- Gaps stay gaps. Where data is missing there is no grade rather than an estimate, and the page says what is missing.
- No personal recommendation. The pages know neither your situation nor your goals. Whether a share suits you is your decision.
All rules in detail
Every threshold is shown exactly as it is computed. The values are read, when this page is built, from the same calculation that produces the grades.
Rounding, weighting and missing data
- Each figure is placed on five steps on its own: reaching none gives 0, reaching all gives 5.
- The grade is the mean of these steps, rounded half up: 3.5 becomes 4.
- The four grades are added without weighting. If a grade is missing because data is missing, it is not estimated: there are then no quality points, and the page names what is missing.
- The grades are absolute. They are not adjusted to the industry: in a weak industry a weak grade stays weak. For utilities and real estate companies high debt is part of the business; their balance sheet grade is therefore not raised, but the page states that it does not compare with other industries.
Thresholds: Balance sheet
Measured on the latest fiscal year. A company holding more cash than financial debt gets the full grade for net debt without a ratio being computed.
| Figure | Grade 1 | Grade 2 | Grade 3 | Grade 4 | Grade 5 |
|---|---|---|---|---|---|
| Net debtFinancial debt minus cash, divided by operating income before depreciation | ≤ 5.0× | ≤ 4.0× | ≤ 3.0× | ≤ 2.0× | ≤ 1.0× |
| Net debt, without reported depreciationThe same against operating income where no depreciation is reported; hence stricter steps | ≤ 4.0× | ≤ 3.0× | ≤ 2.0× | ≤ 1.0× | ≤ 0.0× |
| Current ratioCurrent assets divided by current liabilities | ≥ 0.8 | ≥ 1.0 | ≥ 1.3 | ≥ 1.8 | ≥ 2.5 |
| Equity ratioEquity divided by total assets. Banks and insurers only, replacing the two figures above | ≥ 4 % | ≥ 6 % | ≥ 8 % | ≥ 11 % | ≥ 15 % |
Thresholds: Profitability
Measured on the latest fiscal year. With negative equity, return on equity is left out.
| Figure | Grade 1 | Grade 2 | Grade 3 | Grade 4 | Grade 5 |
|---|---|---|---|---|---|
| Operating marginOperating income divided by revenue | ≥ 0 % | ≥ 5 % | ≥ 12 % | ≥ 20 % | ≥ 30 % |
| Return on equityNet income divided by shareholders’ equity | ≥ 0 % | ≥ 5 % | ≥ 10 % | ≥ 18 % | ≥ 25 % |
Thresholds: Cash flow
Free cash flow is operating cash flow minus capital expenditure. The first two figures cover the latest fiscal year, the third up to five years. Banks and insurers get no cash flow grade: their cash flow follows lending and deposits, not earning power.
| Figure | Grade 1 | Grade 2 | Grade 3 | Grade 4 | Grade 5 |
|---|---|---|---|---|---|
| Free cash flow to revenueHow much of revenue is left as free cash | ≥ 0 % | ≥ 5 % | ≥ 10 % | ≥ 18 % | ≥ 25 % |
| Profit covered by cash flowFree cash flow divided by net income, only when profit is positive | ≥ 0.4× | ≥ 0.6× | ≥ 0.8× | ≥ 1.0× | ≥ 1.2× |
| Free cash flow positiveShare of the last up to five years with positive free cash flow, times 5, rounded | 1 of 5 | 2 of 5 | 3 of 5 | 4 of 5 | 5 of 5 |
Thresholds: Growth
Over as many years as are available, at most five. Computed only when the first and last values are positive.
| Figure | Grade 1 | Grade 2 | Grade 3 | Grade 4 | Grade 5 |
|---|---|---|---|---|---|
| Revenue growth per yearAnnual growth rate over up to five years | ≥ 0 % | ≥ 3 % | ≥ 8 % | ≥ 15 % | ≥ 25 % |
| Operating income per yearAnnual growth rate over up to five years | ≥ 0 % | ≥ 3 % | ≥ 8 % | ≥ 15 % | ≥ 25 % |
Valuation range: methods, exclusions and caps
- For each method a multiple is formed, for example price divided by earnings per share. It is computed for each of the last up to 10 fiscal years, using the price on the balance sheet date.
- From these years the lower and upper quarter are taken (25th and 75th percentile) and applied to the figures of the latest report. That gives one price band per method. At least four years with a price and a positive basis are needed.
- A method is dropped if its multiple varies by more than a factor of 4 between its highest and lowest year: there is then no usual level. It is also dropped if its midpoint differs by more than a factor of 2 from the midpoint of the others.
- The range is the median of the lower and the median of the upper bounds of all remaining methods. Reliable means at least three methods. With one or two it says “limited”; with none, no range is shown.
Which methods for whom
The industry comes from the SEC’s official industry code. For banks, liabilities are the business itself rather than its funding; revenue, free cash flow and enterprise value do not compare there. For real estate companies depreciation lowers profit without the buildings losing value at that pace; the measure there is FFO, funds from operations before depreciation and gains on sales.
| Industry, retail, services | Price to earnings · Price to sales · Price to free cash flow · Price to book · Enterprise value to sales · Enterprise value to operating profit |
| Banks and insurers | Price to earnings · Price to book |
| Real estate companies | Price to FFO · Price to book · Enterprise value to sales |
| Utilities | Price to earnings · Price to book · Enterprise value to sales · Enterprise value to operating profit |
Caps per method
Years in which a company had almost no profit or revenue produce multiples in the thousands. They say nothing about the usual level and are not counted when above these caps.
| Price to earnings | 60 |
| Price to sales | 25 |
| Price to free cash flow | 60 |
| Price to book | 20 |
| Price to FFO | 40 |
| Enterprise value to sales | 25 |
| Enterprise value to operating profit | 40 |
Competitive strengths: how durable the advantage is
A durable advantage, often called a moat, comes from brand, switching costs, networks or scale. The causes appear in no report, but their trace does: a high return on the assets employed that holds over years. It is measured over up to 10 years, with at least 6 years. These points are not part of the quality points.
- Return on assets, level (up to 3 points): operating income divided by total assets, median of the years. From 7 % one point, from 12 % two, from 18 % three. Total assets are the denominator because, unlike equity, they cannot be shrunk by share buybacks.
- Return on assets, persistence (up to 3 points): share of years with at least 10 %. From 40 % one point, from 60 % two, from 80 % three. If the last two years were both below, at most one point: an advantage that is over is history.
- Pricing power (up to 2 points): gross margin. One point if its median is at least 40 %, one if it fell by no more than 5 percentage points from the first to the last third of the years.
- Stability in a downturn (up to 2 points): operating margin in the downturn years 2020 and 2022. One point each if it held at least two thirds of its usual level (median of the years).
- Classification: “broadly evidenced” from 80 % of possible points and only if all four parts could be computed; “present” from 50 %, “weak” from 20 %, below that “no trace”.
Rule set and changes
Rule set version 2.8.0 applies. Every company page states the version it was computed with. A rule change gets a new number and is listed here.
| 2.8.0 · 24.10.2026 | Grades also for companies with fewer than four fiscal years, for example after an IPO: profitability, balance sheet and cash flow from the latest year. Growth, consistency of free cash flow, valuation range and competitive strengths only from four fiscal years. Unchanged for all others. |
| 2.7.0 · 01.10.2026 | Report dates are estimated from SEC filings. Grades and range are computed unchanged. |
| 2.6.0 · 01.10.2026 | No cash flow grade for banks and insurers. Net debt measured against operating income before depreciation. Missing prices are reported as a data gap. |
| 2.5.0 · 01.10.2026 | Valuation methods by business model: banks only earnings and book value, real estate via FFO, utilities without free cash flow. |
| 2.4.0 · 30.09.2026 | The valuation history starts after an unexplained jump in the share count. |
| 2.2.0 · 30.09.2026 | Enterprise value methods; net cash counted as the full balance sheet grade. |