Replies to post #11958 on A.I.M. Users Bulletin Board (AIMUSERS)

[aptus]

Hi Keith,

ENTG was number 20 on the list with a score of 3.31. Compare this with PLNR's score of 9.19.

In general, a score of 6 and above means this is a good candidate for further study while a score of 3 and below means this should be looked at carefully as a sell candidate if you own it.

The score is calculated from the following (all numbers annualized):

1. Income > 0
2. Revenue > 100 million
3. Debt/Equity < 0.4
4. Current Ratio >= 2
5. Debt/Total Assets < 0.60
6. P/S <= 1.5
7. Total Assets/Shareholder's Equity < 2
8. FCF Margin as high as possible (see note 1 below).
9. Accruals Ratio as low as possible (see note 2 below).
10. Fair Price/Current Price as high as possible (see note 3 below).

1 & 2 measure stability.
3 to 5 measure debt and the ability to handle it.
6,7 and 10 measure value.
8 & 9 measure true earnings (i.e. earnings that translate into cash in the bank rather than those attributed to accounting entries).

Note 1: Free Cash Flow Margin is defined as FCF/Revenue and is assigned more points for values above 0.80. The assigned points get smaller for values at 0.60, 0.40 and 0.20. Points are subtracted for values below -0.2, -0.4, -0.6 and -0.8. As the values decrease, more points are subtracted.

Note 2: The accruals ratio was explained here --> http://www.investorshub.com/boards/read_msg.asp?message_id=2305714 and awards more points for ratios <= -10, slightly fewer points for ratios <= -5 (but greater than -10) and subtracts an increasing number of points for ratios greater than +5 and greater than +10 respectively.

Note 3: Fair Price is calculated by Ben Graham's formula for growth stocks in his book, "The Intelligent Investor." (see page 158 of the 5th edition.)

I also look at other factors, but this is a very good first step.