Understanding the Quality score

Quality for capital markets

What makes a strong business?

A good business needs more than a good year. The Quality score looks at how well the company uses its money, earns profit and supports its finances.

This guide covers businesses providing investment services. Quality checks growth in income per share rather than growth in lending income.

5 parts. One score from 0 to 100.
The score describes the business. It does not tell you whether the shares are cheap.

Using money well 15%Growing income per share 15%Growing profit per share 15%Costs and steady profits 30%Managing debt 25%

Quality for capital markets: illustrated explanation; the same checks are explained below. — Open the full-size image in a new tab.

01 / Read the result

What does the number tell you?

0Lower score

A higher score means stronger results on these checks.

100Higher score

Each part receives points from 0 to 100. The percentages above show how much each part counts. A higher total means stronger results on these checks.

02 / Explore the business

Questions behind the score

The percentages show how much each part counts.

Using money well

How much profit does the business earn from the capital it uses?

15%of the score

A simple example

A 10% annual return means$10 earned for every $100 used

This describes a return in the business, not the return you receive on your shares.

See how the points are calculated

▸Return on capital – 15%: We use ROCE, which compares earnings with the capital employed by the business.

Growing income per share

Is income growing per share?

15%of the score

A simple example

Income per share$10 → $11=10% growth

Using an amount per share allows for changes in the number of shares.

See how the points are calculated

▸Income growth – 15%: For financial services, we examine growth in interest income after interest costs. For capital-markets firms, we examine growth in revenue per share. This is a growth measure and replaces the cash-generation component.

Growing profit per share

Is profit growing for each share? We allow for potential extra shares too.

15%of the score

A simple example

Profit per share$2 → $2.20=10% growth

More profit reaches each share in this example.

See how the points are calculated

▸Earnings-per-share growth – 15%: We examine whether profit per share is growing. The calculation also allows for potential additional shares that would share in earnings with existing owners.

Costs and steady profits

How much income goes on running costs? How steady is the share left as profit?

30%of the score

A simple example

$60 in running costs÷$100 income=60% used on costs

A smaller share leaves more room if income falls.

See how the points are calculated

▸Profitability and stability – 30%: We examine operating costs relative to revenue (50% of this part). The other half examines how steadily a share of revenue remains as profit after all expenses (50% of this part).

Managing debt

How much of the money funding the business comes from borrowing?

25%of the score

A simple example

$40 borrowed÷$100 total funding=40% debt

A smaller debt share leaves more room when results weaken.

See how the points are calculated

▸Financial strength – 25%: We compare debt with total capital. This is the debt measure used in this calculation.

Missing figures reduce the information supporting the score and may change how much each remaining check counts. With too little usable information, no score is shown. Read the notes beside the company’s score. A usable return measure is required.

03 / Look a little closer

How we calculate the points

Explore the calculation, the periods used and the information behind the result.

How the checks add up

Financial services and capital markets

These calculations apply to businesses such as money managers, payment providers and securities firms. Here, we give greater weight to costs and consistent profitability.

What happens when figures are missing?

A poor result and a missing figure are different things. A poor result lowers its part of the score. When a figure is missing, the other parts may receive more weight. We also show that the assessment is based on less information.

We measure how much of the calculation has usable information. We use the component weights, so a missing measure with a large share matters more. At least 90% normally gives High confidence, 70% to below 90% gives Medium, and 60% to below 70% gives Limited. Confidence can be lower when some figures rely on an alternative calculation.

We do not show an overall Quality score if usable information covers less than 60% of the calculation. We also need a usable return-on-capital measure. Without it, we do not show the score. For a bank, we use the corresponding bank return measure.

A measure that is not used for that business type does not count as missing. For example, we do not assess a bank using the standard free cash flow calculation.