Quality for capital markets

See how well this business uses money, earns profits and supports its finances.

The score in pictures

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

What we check

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

Using money well (15%)

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

Growing income per share (15%)

Is income growing per share?

Growing profit per share (15%)

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

Costs and steady profits (30%)

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

Managing debt (25%)

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

How to read the 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.

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.

A strong business can still have an expensive share price. The score does not predict what the share price will do.

How we calculate the points

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.

▸Return on capital – 15%: We use ROCE, which compares earnings with the capital employed by the business.
▸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.
▸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.
▸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).
▸Financial strength – 25%: We compare debt with total capital. This is the debt measure used in this calculation.

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.