EdgeScore

EdgeScore by MyTradeEdge

Methodology

EdgeScore checks whether a listed company is financially strong, using only the figures in its own annual reports. It does not look at the share price and says nothing about whether a share is worth owning. Every number on a company page shows the report year it comes from and links to the original filing.

Data

Industry comparisons

Margins and returns differ a lot between industries, so four criteria compare the company with the median of its industry. The median uses only companies with at least 500 million USD in yearly revenue, after removing the top and bottom 5%, so very small or loss-making companies do not distort it. A group needs at least 30 companies; when an industry is smaller, the comparison moves to the wider sector. Each criterion shows the group and the number of companies used.

Companies that do not report gross profit are compared on operating margin instead of gross margin, against the same group.

Stage 1 · Must have

Seven core tests. At least 6 of 7 must pass.

Debt / Equity

Pass: below 1

Financial debt divided by shareholders' equity shows how much of the business is funded by lenders. Below 1 means owners fund more of the company than creditors do.

Gross margin vs. industry

Pass: at least the industry median + 1 pp

Gross margin is the share of revenue left after the direct cost of products and services. Beating the industry median by at least one point suggests pricing power or a cost advantage.

Operating margin vs. industry

Pass: at least the industry median + 1 pp

Used instead of gross margin when a company does not report gross profit. It is the share of revenue left after all operating costs, compared with the same peer group.

Operating cash flow vs. net income

Pass: 3-year sum above 100% of 3-year net income

Compares three years of operating cash flow with three years of reported profit. Above 100% means accounting profit is fully backed by cash coming in.

Free cash flow vs. net income

Pass: 3-year sum above 80% of 3-year net income (70-80% is Close)

Free cash flow is operating cash flow minus capital spending, compared with profit over three years. Above 80% means most of the profit is cash the company can actually use.

ROIC stable and rising

Pass: latest at most 1 pp below the 5-year median and at least 0.5 pp above 5 years ago

Return on invested capital measures the profit earned on all money invested in the business, by owners and lenders. The latest value must hold near its five-year median and be higher than five years ago.

Return on equity vs. industry

Pass: at least the industry median + 1 pp

Return on equity is net income divided by shareholders' equity. It is compared with the industry median because normal levels differ a lot between industries.

Positive EBITDA

Pass: above zero

EBITDA is operating profit before interest, taxes, depreciation and amortization. A positive value means the core business earns money before financing and accounting charges.

Stage 2 · Refinement

Eleven further tests. At least 70% of the applicable criteria must pass. Multi-year criteria need at least three years of data; otherwise they show No data and are left out of the count.

SG&A stable or falling

Pass: at most 0.5 pp above the 5-year median, as a share of revenue

Selling, general and administrative costs as a share of revenue show how heavy the overhead is. Staying at or below the five-year median means costs are under control.

Interest coverage

Pass: above 5

Operating income divided by interest expense shows how easily the company pays its lenders. Above 5 leaves a wide safety margin if profits fall.

Net margin vs. industry

Pass: at least the industry median + 1 pp

Net margin is the share of revenue that ends up as net profit. It is compared with the industry median to account for different business models.

ROA vs. industry

Pass: at least the industry median + 1 pp

Return on assets is net income divided by total assets. It shows how efficiently the company turns everything it owns into profit, compared with its peers.

Current ratio

Pass: above 1.5

Current assets divided by current liabilities measures the ability to pay bills due within a year. Above 1.5 indicates a comfortable short-term buffer.

Total assets growing, 5 years

Pass: positive average growth, at most one decline beyond the sector limit

Checks that total assets grew on average over five years, with at most one sharp annual decline. The allowed decline depends on the sector, and the check is skipped for software companies.

Free cash flow CAGR, 5 years

Pass: at least 5% a year

The average yearly growth rate of free cash flow over five years. At least 5% a year shows the cash a business produces is growing.

Quick ratio

Pass: above 1

Like the current ratio, but without inventory, which can be slow to turn into cash. Above 1 means short-term debts are covered by the most liquid assets.

Net debt / EBITDA

Pass: below 3

Financial debt minus cash, divided by EBITDA, estimates how many years of operating earnings would repay the debt. Below 3 is generally considered manageable.

Positive free cash flow

Pass: above zero

Free cash flow in the latest year must be above zero. It means operations fund investment without new debt or new shares.

Revenue CAGR, 5 years

Pass: at least 7% a year

The average yearly growth rate of revenue over five years. At least 7% a year points to a business that keeps expanding.

Verdicts

Financially strong

Stage 1 passes (at least 6 of 7) and Stage 2 passes (at least 70% of applicable criteria).

Nearly strong

One stage passes and the other is one step away: 5 of 7 in Stage 1, or at least 60% in Stage 2.

Financially weak

All other cases.

Insufficient data

More than 30% of the criteria cannot be computed from the reported figures.

Not scored

ETFs and funds, which have no operating financial statements, and banks and insurers, whose model needs different criteria.

For information and education only. Not investment advice. Data may contain errors.

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