How the grade works
Every company is graded A to F on five checks of growth and cash generation, and every check is shown on its page with the figures it was judged on. This page is the whole rubric.
The five checks
Each check passes or fails on figures from the company’s own filings. A figure we could not find makes the check unanswerable, never a failure.
- 1
Revenue growing overall
Revenue over the latest twelve months is higher than over the same twelve months three years earlier. Compared like for like, so the answer does not depend on where a fiscal year happens to end.
- 2
Revenue growing recently
Revenue over the latest twelve months is higher than in the most recent full fiscal year before them.
- 3
Free cash flow positive
The business generated cash over the latest twelve months after paying for its capital spending.
- 4
Free cash flow growing overall
Free cash flow over the latest twelve months is higher than over the same twelve months three years earlier.
- 5
Free cash flow growing recently
Free cash flow over the latest twelve months is higher than in the most recent full fiscal year before them.
From checks to a letter
The letter comes from five checks on growth and cash generation, and it counts what failed rather than scoring a share of them. A company that reports only four of the five is graded on the same ladder as one reporting all five.
Lenders — banks, insurers — report no revenue or capital spending to judge, so they are graded on five different checks: profitability, earnings growth, return on assets and book value per share. The panel names whichever set was used.
- A — Every check passed.A
- B — One check failed.B
- C — Two checks failed.C
- D — Three checks failed.D
- F — Four or more failed.F
- + and −
- A second, separate group of six checks on business quality — margins, returns, leverage. A plus when at least 80% of them pass, a minus when under 30%, and nothing in between; at least 4 of the six have to be answerable before either is published. It never changes the letter, only qualifies it: an A− is top marks for growth on a weak underlying business.
- Not rated
- Fewer than 4 of the five checks could be answered from the filings, which is too few to place a company on the scale. Banks and property trusts land here most often: they report no comparable capital expenditure, so the free cash flow the grade is built on cannot be worked out. Not the same as an F — that is a company we can measure and it did badly.
The letter describes the reported financials. It is not a recommendation, and says nothing about whether the share price is reasonable.
How is the grade history not just a flattering backtest?
Each quarter is rebuilt using only the filings that were public on that date, reporting lag included. Companies restate, so grading the past with today’s restated figures would hand the grade information nobody had at the time. That is the difference between a history and a sales pitch.
Where do the numbers come from?
Directly from each company’s own filings with the SEC, through their XBRL data. Nothing is estimated, no analyst forecasts are used, and no figures are licensed from a data vendor. Share prices come from a market data feed, split- and dividend-adjusted.
Does the grade tell me whether to buy?
No, and it is not designed to. It describes whether a business is growing and generating cash, which says nothing about whether the share price is sensible — Apple and Palantir have both graded A while trading at wildly different multiples. Price is shown separately and never scored.