10 criteria, public sources, no black box
The quality score rests on 10 objective financial criteria, validated against thresholds drawn from financial literature. The calculation is automatic, with no human opinion.
The 10 quality criteria
Profitability, growth in sales and free cash flow, share buybacks, margins, revenue per employee growth, return on capital (Cash ROCE), controlled debt, conversion of earnings into cash, cash cycle.
Valuation, judged separately
P/FCF (price relative to free cash flow) measures whether the stock is expensive or cheap. A good company at a bad price is still a bad investment.
The 10 criteria in detail
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1. Profitable
Formula : Net margin = Net income / Revenue
Threshold : > 5%
A net margin above 5% fully passes the criterion; a positive margin up to 5% remains Partial.
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2. Growing sales
Formula : Revenue growth over 5 years
Threshold : > 10% per year
Sales growth remains the best driver of long-term value creation. We measure the 5-year trend to smooth out exceptional years.
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3. Growing earnings per share
Formula : Cash-per-share growth over 5 years
Threshold : > 10% per year
What really matters to you as a shareholder is the cash generated per share. We also strip out shares granted to employees, which dilute your stake.
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4. Share count under control
Formula : Annual change in diluted share count over 5 years
Threshold : Stable or declining
Dilution is when the company issues new shares: your slice of the pie shrinks. The best ones do the opposite — they buy back shares instead of issuing them.
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5. Growing revenue per employee
Formula : Revenue and revenue-per-employee growth over 5 years
Threshold : Revenue and revenue per employee ≥ 10% per year
The criterion is Yes when both growth rates reach 10%. It is Partial when revenue per employee reaches 10% with revenue below 10%, or when revenue reaches 10% with revenue per employee between 5% and 10%. Everything else is No. When employee history is unavailable, we grade cash profitability instead.
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6. Expanding margins
Formula : Change in operating margin over 5 years
Threshold : Rising
Margins rising over the years reveal a real edge: the company can set its prices or produce more cheaply. A sign of durable quality.
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7. Return on invested capital
Formula : Cash generated per €100 invested in the business (Cash ROCE)
Threshold : > 15%
How much cash the company generates for each euro actually invested in its business. Above 15%, it puts its money to work very efficiently.
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8. Controlled debt
Formula : Net debt / free cash flow
Threshold : < 3 years
How many years of cash it would take to repay all the debt. Beyond 3 years, the risk becomes serious in a downturn.
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9. Earnings turned into cash
Formula : Free cash flow / net income
Threshold : > 1
Checks that reported profits become real money, not just an accounting entry. A ratio durably below 1 is a warning sign.
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10. Net collection period
Formula : Days that cash stays locked in the cycle (receivables, inventory, payables)
Threshold : Low or negative
The time, in days, that money is tied up between when the company pays its suppliers and when its customers pay it. Short or negative is excellent: its suppliers finance its growth (Apple, Amazon).