Glossary

How It Works Glossary

The actual formulas — not a simplified version. Every weight on this page is the real number the scoring engine uses.

🧭 The Core Idea

A great company bought at a terrible price and a mediocre company bought at a fair price can average out to look identical — and that's misleading, since they're genuinely different situations. So we keep two questions separate: Quality (is this a good business?) and Valuation (is the price fair?) — then combine both, deliberately, into one Combined Score.

🏆 Quality Score

A blend of five pillars — deliberately excluding Valuation. Quality asks whether the business itself is good, with no reference to its price at all.

Quality = (Profitability × 0.25) + (Debt Safety × 0.19) + (Earnings Quality × 0.25) + (Growth × 0.25) + (Opportunity × 0.06) + institutional bonus
Profitability25%
Debt Safety19%
Earnings Quality25%
Growth25%
Opportunity6%

Plus a small bonus for institutional ownership, where applicable.

⚖️ Combined Score

All six pillars, weighted, then adjusted in three specific ways described below — this is not a plain weighted average.

Combined = (Profitability × 0.20) + (Debt Safety × 0.15) + (Earnings Quality × 0.15) + (Growth × 0.20) + (Valuation × 0.20) + (Opportunity × 0.10) + adjustments
Profitability20%
Debt Safety15%
Earnings Quality15%
Growth20%
Valuation20%
Opportunity10%

Then three adjustments

  • Wide disagreement penalty. If Quality and Valuation scores are far apart (55+ points), the combined score is reduced by 12%; a moderate gap (40+) reduces it by 6%. An excellent company at an absurd price and a mediocre one at a fair price can average to the same number — that disagreement is treated as real information, not smoothed away.
  • Value-trap floor. If the Quality Score is below 35, the combined score is capped at 45 no matter how cheap the stock looks. Below 45 Quality, it's capped at 55. A genuinely poor business does not become a good holding by being inexpensive.
  • Data confidence multiplier. The final score is scaled down slightly when less financial history is available — see the table below.

📊 Data Confidence

More years of financial history earns more confidence in the score.

ConfidenceMultiplier
High1.00×
Medium-High0.97×
Medium0.95×
Low0.92×
Very Low0.88×

The Six Pillars

What each one actually measures, and its exact point breakdown.

💰 Profitability max 100

Higher means the company earns more from what it already has — strong returns on equity, healthy margins on every rupee of sales. Example: a company with ROE of 25% and healthy margins comfortably ahead of its sector would score high here. A company with ROE of 4% and thin, shrinking margins would score low, even if it's technically profitable.

Profitability = ROE (40) + Net Margin (35) + Op Margin Trend (25) + ROI (25)
Return on Equity, vs sector benchmark40 pts
Net Margin, vs sector benchmark35 pts
Operating Margin Trend, vs own 5yr average25 pts
Return on Investment25 pts

Return on Investment is skipped for banks and lenders, where "invested capital" doesn't carry the same meaning. Scored on whatever data is actually available — a missing component isn't treated as a zero, and scores built on thin data are pulled toward neutral and capped, rather than allowed to look confidently high or low on one strong or weak number alone.

🛡️ Debt Safety max 100

Higher means lower financial risk — manageable debt, comfortably covering interest payments. Example: a company with Debt/Equity of 0.3 and interest cover of 12x would score high. A company with Debt/Equity of 2.5 and interest cover of 1.2x — barely covering interest — would score low, since a bad year could push it into real trouble.

Debt Safety = Leverage (35) + Interest Cover (25) + Net Debt/EBITDA (20) + FCF (12) + Debt Trend (8)
Leverage (Debt/Equity)35 pts
Interest Cover25 pts
Net Debt / EBITDA20 pts
Free Cash Flow12 pts
Debt Trend8 pts

📗 Earnings Quality max 100

Higher means the profit is real and reliable — consistent year to year, and actually backed by cash, not just accounting entries. Example: a company reporting steady profit for 5 straight years, where operating cash flow closely tracks reported profit, would score high. A company whose profit swings wildly year to year, or reports profit on paper that never shows up as actual cash, would score low.

Earnings Quality = Profit Consistency (45) + Cash Conversion (35) + Accruals (12) + CFO Reliability (8)
Profit Consistency45 pts
Cash Conversion35 pts
Accruals12 pts
Operating Cash Reliability8 pts

Caps apply for stocks with volatile, recovering, or reversing earnings — a single strong year after several weak ones doesn't score the same as sustained consistency.

📈 Growth max 100

Higher means profit has been growing steadily, ideally accelerating. Example: a company with profit CAGR of 22% over 3 years, accelerating from its longer-term rate, would score high. A company with flat or negative profit growth over the same period would score low.

Growth = Primary CAGR (50) + 3yr CAGR (30) + Acceleration (20) ± Alignment adjustment
Primary (long-run) profit CAGR, vs sector's growth bar50 pts
3-year profit CAGR, vs sector's growth bar30 pts
Acceleration — is 3yr CAGR faster than the long-run rate?20 pts

Then a Profit vs Revenue Alignment adjustment of roughly ±3 to ±6 points: if profit growth is running meaningfully ahead of revenue growth for too long, that's usually margin expansion running out of room rather than durable strength, and it's penalised accordingly. Cyclical businesses use a cycle-averaged growth calculation instead of raw year-over-year figures, so one unusually strong or weak year doesn't distort the result. A latest-year loss, or too little history for a full CAGR (recently listed companies), each use a separate calculation built for that specific situation rather than being forced through a formula that needs data they don't have.

💵 Valuation max 100

Higher means the stock looks cheap relative to its own earnings — a low PE, for example, produces a high valuation score, not a low one. The score measures how good the price looks, not the raw PE number itself. Example: a company trading at PE 12 while its sector typically trades around PE 25 would score high — the market is pricing it cheaply relative to peers. A company trading at PE 60 in a sector where PE 20 is typical would score low, even if it's an excellent business, because you're paying a lot for that quality.

Valuation = PE (40) + EV/EBITDA (25) + PEG (20) + PB (sector-dependent)
PE, vs the sector's own median (a fixed band when no reliable median exists)40 pts
EV/EBITDA25 pts
PEG20 pts
PB, weight varies by sector (typically 20–30 pts)~25 pts

PEG is halved (10 pts instead of 20) when earnings are recovering off a low base or unusually volatile, since the growth figure in PEG's denominator isn't reliable in those cases. PB's weight depends on how capital-intensive the sector normally is — book value means something different for a bank than for an asset-light software company, so a fixed PB weight would compare unlike things. Extreme PE outliers (a collapsed earnings base, not a real valuation signal) are excluded before the sector median itself is calculated, so one distorted company can't drag the benchmark for every peer in that sector.

🚀 Opportunity max 100

Higher means more room ahead to keep growing — the company isn't yet near its size ceiling, is reinvesting for growth, and its sector has real tailwinds. Example: a mid-sized company in an expanding sector, reinvesting heavily rather than paying it all out as dividends, would score high. A company that already dominates its market with little room left to expand, in a slow-growing sector, would score low — even if it's currently doing very well.

Opportunity = Size Headroom (30) + Acceleration (28) + Reinvestment (24) + Sector Tailwind (18)
Size Headroom30 pts
Acceleration28 pts
Reinvestment24 pts
Sector Tailwind18 pts

⚠️ What This Isn't

A score is a summary of past and current financial fundamentals — not a prediction, and not investment advice. It can't see tomorrow's news, a management decision that hasn't happened yet, or a sudden shift in an industry. Treat it as one well-documented input among many, not a verdict.

Not sure what one of these terms means? See the Glossary.

Every financial term used across the site, in plain English.

Accruals

The gap between reported profit and actual cash collected. A company can report a profit that hasn't shown up as cash yet — high accruals are a flag that earnings may be less reliable than they look.

CAGR

Compound Annual Growth Rate — the smoothed, year-over-year growth rate that gets you from a starting number to an ending number over several years, if it had grown at a steady pace the whole way (real growth is rarely that steady; CAGR just gives one comparable number for it).

Cash Conversion

How much of reported profit actually arrived as cash, not just an accounting entry. Above 1.0× means more cash came in than the profit figure alone suggests; well below 1.0× is worth a closer look.

D/E (Debt/Equity)

Total borrowings divided by shareholders' equity. A D/E of 0.5 means the company has ₹0.50 of debt for every ₹1 of equity. Lower generally means less financial risk, though the right level varies a lot by industry.

Dividend Yield

Annual dividend paid per share, as a percentage of the current share price. A rough measure of cash return to shareholders through dividends alone, separate from any change in the share price itself.

EBITDA

Earnings Before Interest, Taxes, Depreciation and Amortisation — profit before those specific items are subtracted. Used to compare companies' core operating performance without differences in financing structure or accounting choices getting in the way.

EV/EBITDA

Enterprise Value divided by EBITDA. Similar purpose to PE, but accounts for a company's debt as well as its equity — useful for comparing companies with different capital structures on a more even footing.

Free Cash Flow (FCF)

Cash generated from operations, minus the capital expenditure needed to maintain and grow the business. What's left over — for dividends, debt paydown, buybacks, or reinvestment.

Interest Cover

Operating profit divided by interest expense — how many times over a company could pay its interest bill from its earnings. Higher means more breathing room if profits dip.

Market Cap

Share price multiplied by the total number of shares outstanding — the total market value of the company.

Net Debt/EBITDA

Total debt minus cash, divided by EBITDA — roughly, how many years of current earnings it would take to pay off all debt if every rupee of EBITDA went toward it.

Net Margin

Net profit as a percentage of revenue — how much of every rupee of sales actually ends up as profit, after every cost, interest and tax.

Operating Margin

Operating profit as a percentage of revenue — profit from core operations only, before interest and tax. Strips out financing and tax decisions to show how profitable the underlying business actually is.

PB (Price/Book)

Share price divided by book value per share (roughly, net assets per share). A PB well above 1 means the market values the company well beyond what its accounting books show; what counts as "high" varies enormously by industry.

PE (Price/Earnings)

Share price divided by earnings per share. The most common shorthand for "how expensive is this stock" — a PE of 20 means the price is 20 times the company's annual per-share earnings. A lower PE generally means a cheaper stock relative to its earnings — which is why a low PE produces a high Valuation score, not a low one.

PEG

PE ratio divided by the earnings growth rate. Adjusts the PE for how fast the company is actually growing — a high PE can look more reasonable once fast growth is accounted for, and vice versa.

ROE (Return on Equity)

Net profit as a percentage of shareholders' equity — how efficiently a company turns shareholders' money into profit. Can be inflated by high debt, which is part of why we also score debt separately.

ROI (Return on Investment)

A broader efficiency measure than ROE, closer to how well the company generates returns on the total capital invested in the business, not just shareholders' portion of it.