Nine yes/no questions for the balance sheet, one point each, no weighting. Is the company improving fundamentally, or stuck in a downward spiral?
Save the strategy and StockScorer checks its rules for you every day. You'll get a heads-up whenever a stock crosses the upper or lower score threshold.
Once enough history is available, the backtest chart for this strategy will appear here.
Every stock runs through the same disclosed rules. The points add up to a score, traceable down to the individual rule.
Each rule checks a metric against a threshold, for example ROE above 15 %.
You decide how much each rule counts: from +1 to +3 or −1 to −3.
The sum is the score. Above the upper threshold: a high match with the profile.
These terms describe only the match with the criteria, not a recommendation to buy or sell.
Net income and operating cash flow must be positive, with cash flow above profit.
Return on assets, liquidity, gross margin and asset turnover are checked against the prior year.
A falling leverage ratio signals a balance sheet getting stronger rather than more fragile.
No new share issuance: dilution is often the first sign of capital distress.
For safety-conscious fundamental investors, and as a quality filter before value purchases: a low price is worthless if the substance is eroding. If you screen optically cheap stocks, this is where you see whether the balance sheet confirms the story.
The 9-point balance-sheet check assesses a company's financial condition with nine strictly binary criteria. Each one met earns exactly one point. The blueprint is the F-Score that Joseph Piotroski developed at the University of Chicago in 2000: especially among cheaply valued stocks, the unweighted sum of weak individual signals reliably separates companies with real substance from those burning capital internally. The accrual check is particularly revealing: if operating cash flow exceeds net income, the profit is backed by real money, not by accounting effects.
All nine criteria are yes/no questions worth exactly one point, deliberately unweighted. The empirical research behind the F-Score principle shows that it is precisely the unweighted accumulation of many weak signals that maximises predictive power for financial stability. Missing data conservatively earns no point.
Four criteria test profitability (positive profit, positive cash flow, rising return on assets, cash flow above profit), three the capital structure (falling leverage, rising liquidity, no dilution), two operating efficiency (rising gross margin and asset turnover). The upper threshold is 6 points for large caps, 7 for mid caps and 8 for small caps.
Profitability: (1) net income positive, (2) operating cash flow positive, (3) return on assets above prior year, (4) operating cash flow above net income (earnings quality).
Capital structure: (5) leverage below prior year, (6) current ratio above prior year, (7) share count not increased.
Efficiency: (8) gross margin above prior year, (9) asset turnover (revenue/total assets) above prior year.
The check is a trend instrument: it measures improvement over the prior year, not absolute levels. A solid but stagnant company can therefore score lower than one improving rapidly; by design, because those improvers have historically delivered the excess returns in the cheap end of the market.
Documented deviation: the academic original measures the leverage trend via long-term debt over total assets; StockScorer uses the debt-to-equity ratio: same direction, slightly different base. The accrual comparison uses operating cash flow as in the original.
For anyone who wants to check balance-sheet quality systematically, standalone, or as a second filter next to a valuation strategy such as Two-Factor Value + Quality.