Metrics used to assess the durability of financial statements
Below you can find a list and basic description of the metrics used by BeatTheMarketz to assess the durability of a company's financials. The exact scoring method is not disclosed, but this will give a general idea of the process to which financial durability is measured.
Gross Profit Margin: Long term average + year over tear trend for the last 10 years (increasing or decreasing).
SGA to Profit Ratio: Long term average + year over year deviation + year over year trend (increasing or decreasing).
Depreciation to Profit Ratio: Long term average + year over year trend.
R&D to Profit Ratio: Long term average + year over year trend.
Net Interest to Profit Ratio: Long term average + year over year trend.
Net Income Trend: Year over year change in net income.
Earnings to Revenue Ratio: Long term average + year over year trend.
EPS: year over year trend.
Cash Ratio: Long term average + year over year trend.
Current Ratio: Long term average + year over year trend.
Inventories: year over year trend.
Property, Plant & Equipment: year over year % change + year over year deviation.
Short Term to Long Term Debt Ratio: Long term average + year over year trend.
Long Term Debt to Equity: Long term average + year over year trend.
Short Term Debt to Equity: Long term average + year over year trend.
Years to Pay off Long Term Debt Using Profits: Long term average + year over year trend.
Retained Earnings: Long term trend.
Treasury Stock: Long term trend.
Return on Shareholder Equity: Long term average + year over year trend.
*ROIC: Not used in the scoring method but is used separately within the strategy formula for filtering results. Low ROIC's are excluded entirely and higher ROICS bump up the stock in the formula. High financial durability also bumps a stock up in the formula and thirdly a greater distance to price target on future earnings will bump up a stock within the formula. That way we ultimately start with a list of company's with above average financial durability as scored using the metrics above, then weed out the ones that have low returns on invested capital and are richly valued. The highest scoring results in the formula will be company's with the greatest combination of financial durability, high ROIC and have the largest upside potential.