The Investment Checklist | four factors of business quality

What the checklist is

A four-factor quality score for any stock, built purely on fundamentals. Appears on the stock page in the Overview tab, embedded in the conviction-and-checklist strip above the tabs. Each factor scores 0–100 with a pass / neutral / fail label.

Where the conviction engine reads short-term flows and signals, the checklist reads the slower-moving fundamentals of business quality. Price action and momentum timing now live in the separate conviction (Market Setup) signal, so the checklist stays focused on the business itself. They're complementary, not duplicative.

The four factors

1. Valuation

P/E, P/B and EV/EBITDA, judged against the stock's sector archetype.

• CHEAP — both ratios below sector median by a margin
• FAIR — in line with sector
• EXPENSIVE — premium to sector that may or may not be justified

A "CHEAP" verdict alone isn't a buy signal: quality cheap and quality-trap cheap look identical here. Combine with the Growth and Returns & Margins verdicts.

2. Growth

Revenue and profit growth, year-on-year (consolidated).

• HIGH GROWTH — sustained double-digit YoY growth in both revenue and PAT
• STABLE — single-digit or low-double-digit, consistent
• DECLINING — flat or contracting

3. Returns & Margins

ROE, ROCE, and net profit margin thresholds.

• EXCELLENT — strong ROCE, ROE, and operating margins (roughly ROCE 20%+, ROE 18%+)
• MODERATE — decent but not standout returns
• WEAK — low, or commodity-grade returns

This is the most predictive factor for long-term compounding. The other factors can fluctuate; returns and margins tend to be sticky.

4. Financial Health

Balance-sheet strength: leverage and the ability to service it.

• STRONG — low Debt/Equity, comfortable interest cover
• ADEQUATE — manageable leverage
• STRAINED — high leverage or thin cover

Banks and financials are scored on a tailored scorecard here, since Debt/Equity doesn't read the same way for a lender.

Reading the overall score

The strip shows three counts: passes, neutrals, fails (e.g. "3 pass / 1 neutral / 0 fail"). The overall score is the average of the factors that have data.

Loose interpretation:

• 80–100 — quality stock by most criteria. Worth opening research on.
• 60–79 — passes more than it fails. Conditional opportunity.
• 40–59 — mixed. Each fail needs explaining.
• Below 40 — multiple meaningful weaknesses. Skip unless you have a specific thesis.

A score doesn't mean buy/sell. It means here are the dimensions where this stock is strong or weak — your judgement decides if the strengths justify the weaknesses.

When checklist contradicts conviction

A stock can be Strong Bullish on conviction (signals firing now) but score 35 on the checklist (poor fundamentals). This is a momentum trade, not a quality buy. The reverse — high checklist, weak conviction — is a quality holding waiting for a catalyst. See Conviction vs Checklist.