GRADE PIPELINE
From statements to a grade
Follow the whole chain in one line: statement figures become metrics, metrics become scores and scores become a grade. Amounts are in billions of won.
Financial statements
Nine metricsMetrics and scores
Score
- ROENet income ₩5B ÷ Equity ₩40B12.5%Band 10% to 15%75 points
- Operating marginOperating income ₩8B ÷ Revenue ₩100B8%Band 5% to 10%55 points
- Revenue growthEntered value4%Band 0% to 5%55 points
- Debt-to-equity ratioLiabilities ₩40B ÷ Equity ₩40B100%Band 100% to 150%55 points
- Current ratioCurrent assets ₩30B ÷ Current liabilities ₩20B150%Band 120% to 160%63.8 points
- Interest coverageOperating income ₩8B ÷ Interest expense ₩2B4xBand 3x to 6x48.3 points
- Dividend yieldEntered value2%Band 1% to 2.5%55 points
- Payout ratioEntered value35%Band 0% to 35%100 points
- Dividend streakEntered value5 yrsBand 3 yrs to 6 yrs56.7 points
Areas → grade
- Earnings61.7 × 40%24.7
- Financial health55.7 × 35%19.5
- Dividends70.6 × 25%17.6
The overall score is rounded down.
An overall score of 61 is grade B. The cutoffs are S from 85 · A from 70 · B from 50 · C from 30.
How to read it
- Derive five ratios from the statements
Line items divided into one another
- Turn nine metrics into scores
Which segment of the scoring curve each value falls in
- Average three metrics into an area score
Each area is the average of its three metrics
- Weight the area scores 40, 35 and 25
Multiply by the weights and add
- Fold the overall score into a grade
By the cutoff bands
On the learning path
This is a fictional company, not a real stock. The tool is for understanding how statement items lead to metrics, scores and a grade. It does not forecast prices or suggest trades. The reference points are the values published in How grades are calculated. The ratio formulas, scoring curves, area weights of 40, 35 and 25 and cutoffs of 85, 70, 50 and 30 are exactly the values used for the real grades. To try one step at a time, use Inside the financial statements and the Grade lab, and see where a value sits in the distribution in the Metric percentile explorer. For information only. Not investment advice.