Tip 6 What is the Score and how to use it?

The higher the score, the safer the investment. The range is 0 – 100 where 0 is bad and 100 is good. This represents the overall financial strength of a stock.

If a stock has strong financials, it’s proving to investors like you and me that it’s a good investment.  The chances of losing money over the long term on a stock with a high score is very small.  In other words, if you invest in a company that’s working hard to keep financials extremely healthy, you have a high probability of making money.

Let’s break down the points and how they are achieved.  You may also find these scores and the definition of each score on the why page of each stock within Tykr.

ROIC (Return on Investment Capital) – Maximum points = 30
Return on invested capital (ROIC) is used to determine a company’s efficiency at allocating capital to profitable investments. The higher the score, the more effective a company is using its capital to generate returns.

On the Income Statement, the data points you’ll want to pay attention to most include:
• Income Tax
• Net Income
• Interest Expense
• Depreciation and Amortization

On the Balance Sheet, the data points you’ll want to pay attention to most include:
• Debt
• Equity

These variables factor into the Return on Invested Capital.  If the ROIC is increasing from year to year, this is a great sign.

Equity GR (Equity Growth Rate) – Maximum points = 15
Equity represents the amount of money that would be returned to a company’s shareholders if all of the assets were liquidated and all of the company’s debt was paid off. The higher the score, the more the company is growing its equity year over year.

On the Balance Sheet, the data point you’ll want to pay attention to most includes:
• Equity

If Equity is increasing from year to year, this is a great sign.

EPS GR (Earnings Per Share Growth Rate) – Maximum points = 15
The higher the EPS, the more profitable a company is considered. The higher the score, the more the company is increasing its EPS year over year.

On the Income Statement, the data point you’ll want to pay attention to most includes:
• EPS

If EPS is increasing from year to year, this is a great sign.

Sales GR (Sales Growth Rate) – Maximum points = 15
Sales represent the revenue of the company. The higher the score, the more the company is increasing its revenue year over year.

On the Income Statement, the data point you’ll want to pay attention to most includes:
• Revenue

If Revenue is increasing from year to year, this is a great sign.

Cash GR (Cash Growth Rate) – Maximum points = 15
Cash is the cash that a business has available. A business with more cash available is going to be better prepared for economic downturns. The higher the score, the more the company is increasing its available cash year over year.

On the Cash Flow Statement, the data point you’ll want to pay attention to most includes:
• Free Cash Flow

If Free Cash Flow is increasing from year to year, this is a great sign.

Score

As you can see, the maximum score that may be achieved is 90/100.

We then take the score calculated for each stock and divide it by 90 to get a percent.

Example: If a stock has a score of 79 we take 79/90 which equals 87.7%. We then turn 87.7% back into a score and display that score on Tykr. In this case the score is 88.