Educational Guide

Understand How StatsAlpha Scores Companies

Transparent, data-driven scoring explained in plain language. Learn how 100+ financial metrics combine into 5 investment pillars, and ultimately a single comprehensive score.

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The Big Picture

Our scoring system works in three layers

Overall Score

Single comprehensive score (0-100)

Output

5 Financial Pillars

Growth • Profitability • Health • Efficiency • Valuation

Aggregation

100+ Financial Metrics

Revenue growth, profit margins, P/E ratio, debt levels, etc.

Foundation
Coming Soon

Industry-Based Scoring

The future of scoring at StatsAlpha

Why it matters: Most financial tools use generic cross-industry ratios that miss what makes each sector unique. We're building industry-aware scoring that captures the specific mechanics of each sector.

45 Industry Clusters

Sector-specific benchmarks and metrics

Smarter Comparisons

Compare REITs to REITs, Banks to Banks

True Insights

Metrics that matter for each industry

Our current scoring system (explained below) provides a strong foundation. Industry-aware scoring will enhance it by applying context-specific weights and benchmarks for each sector.

How It Works
  1. Start with raw data: We fetch financial statements and market data for each company.
  2. Calculate individual metrics: Each metric (like Net Margin or Revenue Growth) is scored 0-100 by comparing to sector benchmarks.
  3. Group into pillars: Related metrics are aggregated into 5 thematic investment signals.
  4. Blend into overall score: Pillars (70%) + non-pillar metrics (30%) = final comprehensive score.

The 5 Financial Pillars

Each pillar measures a unique dimension of financial health

Growth

Measures how quickly a company is expanding its revenue and earnings. Strong growth signals market demand, competitive advantage, and future potential.

Example Metrics:
  • Revenue Growth Rate (YoY)
  • Earnings Per Share (EPS) Growth
  • Operating Income Growth
  • Book Value Growth
Why it matters: Growth companies can reinvest profits and capture market share.

Profitability

Evaluates how efficiently a company converts revenue into profit. High profitability indicates strong business models, pricing power, and operational excellence.

Example Metrics:
  • Net Profit Margin
  • Operating Margin
  • Return on Equity (ROE)
  • Return on Assets (ROA)
  • Gross Margin
Why it matters: Profitable companies generate sustainable earnings and shareholder value.

Health

Assesses financial stability and ability to weather economic downturns. Includes debt levels, liquidity, and solvency metrics.

Example Metrics:
  • Debt-to-Equity Ratio
  • Current Ratio
  • Quick Ratio
  • Interest Coverage
  • Cash Ratio
Why it matters: Healthy balance sheets reduce bankruptcy risk and provide flexibility.

Efficiency

Measures how well a company uses its assets and resources to generate revenue. Efficient companies do more with less, maximizing returns on invested capital.

Example Metrics:
  • Asset Turnover Ratio
  • Inventory Turnover
  • Receivables Turnover
  • Return on Invested Capital (ROIC)
Why it matters: Efficiency drives profitability and competitive advantage through lower costs.

Valuation

Compares the stock's market price to its underlying fundamentals. Helps identify whether a stock is fairly priced, overvalued, or undervalued.

Example Metrics:
  • Price-to-Earnings (P/E) Ratio
  • Price-to-Book (P/B) Ratio
  • PEG Ratio
  • Dividend Yield
  • Enterprise Value / EBITDA
Why it matters: Valuation determines whether the current price offers attractive risk/reward.

How Metrics Become Scores

A concrete example using real data

Example: Price-to-Earnings (P/E) Ratio

Company: Apple Inc. (AAPL)

1
Fetch company's P/E ratio
28.5
2
Fetch sector average P/E
32.1
3
Compare to sector benchmarks
45th percentile
4
Normalize to 0-10 scale
7.8/10
5
Scale to 0-100
78/100
Final Score: 78/100
The company's P/E ratio of 28.5 is lower than the sector average of 32.1, which is favorable (lower P/E = less expensive). This places the company at the 45th percentile among Technology sector peers, earning a score of 78/100.
Scoring Principles
Context is king: We compare companies to their sector peers, not the entire market.
Direction matters: Some metrics are "higher is better" (margins), others are "lower is better" (debt ratios).
Percentile-based: Scores reflect where a company ranks among peers (45th percentile = 45/100).
Outlier handling: Extreme values are capped to prevent distortion.

From Metrics to Pillars

How individual metric scores combine into pillar scores

Example: Profitability Pillar

How 5 profitability metrics combine into a single pillar score

Net Profit Margin 8.5/10
Operating Margin 9.0/10
Return on Equity (ROE) 8.8/10
Return on Assets (ROA) 7.9/10
Gross Margin 8.6/10
Step 1: Average all metric scores
(8.5 + 9.0 + 8.8 + 7.9 + 8.6) ÷ 5 = 8.56
Step 2: Scale to 0-100 range
8.56 × 10 = 85.6/100
Profitability Pillar Score
85.6
100% Confidence (5 of 5 metrics available)
Note: This is a simplified example. In practice, some metrics may be weighted differently based on predictive power, and missing metrics affect the confidence score.

The Overall Score

Combining pillars and metrics into a comprehensive 0-100 score

Weight Distribution
Pillar Scores: 70%
Other Metrics: 30%
Pillar Weight Breakdown

Within the 70% pillar component:

Growth 20%
Profitability 25%
Health 20%
Efficiency 15%
Valuation 20%
Calculation Example
Step 1: Calculate Pillar Component (70%)
Growth (20%): 82.5 × 0.20 = 16.5
Profitability (25%): 85.6 × 0.25 = 21.4
Health (20%): 78.3 × 0.20 = 15.7
Efficiency (15%): 88.9 × 0.15 = 13.3
Valuation (20%): 72.1 × 0.20 = 14.4
Pillar Total: 81.3
Step 2: Add Metric Component (30%)
Non-pillar metrics average: 75.8
Apply 30% weight: 75.8 × 0.30 = 22.7
Step 3: Apply Adjustments
Base score (pillars + metrics): 81.3 + 22.7 = 104.0
Sector adjustment (Technology): +2.0
Market cap adjustment (Large): +0.5
Final Overall Score: 106.5 → Capped at 100.0
Result: This company scores 100/100, representing exceptionally strong fundamentals across all dimensions.

Understanding Confidence

Why some scores are more reliable than others

What is Confidence?

Confidence measures how much data we have available to calculate a score. It's expressed as a percentage from 0% to 100%.

Formula:
Confidence = (Available Metrics ÷ Total Metrics) × 100%
Example:
If a pillar uses 10 metrics and we have data for 8 of them:
Confidence = (8 ÷ 10) × 100% = 80%
Confidence Levels
80-100% High Confidence
Most data available. Score is highly reliable.
50-79% Medium Confidence
Some gaps in data. Score is moderately reliable.
0-49% Low Confidence
Limited data available. Score may not be reliable.
What Affects Confidence?
Company Age

Established companies have longer financial histories

Reporting Quality

Companies with complete, regular filings provide more data

Company Type

Public companies have more disclosure requirements than private

Business Model

Some industries report more granular financials than others

Pro Tip: Always check the confidence score alongside the overall score. A score of 85 with 95% confidence is more trustworthy than a score of 90 with 40% confidence.

Adjustments & Nuance

How sector and market cap factors fine-tune scores

Why Adjustments Matter

Not all companies compete on equal footing. A Technology company naturally has different growth and valuation characteristics than a Utility company. Adjustments (typically ±1-2 points) account for these structural differences, ensuring fair comparisons.

Sector Adjustments

Technology
+2.0 points
High-growth sector with premium valuations
Tech companies often trade at higher P/E ratios than market average
Healthcare
+1.5 points
Defensive sector with strong fundamentals
Pharmaceutical companies have stable revenue streams
Utilities
-1.0 points
Mature, slow-growth sector
Utilities prioritize dividends over growth
Energy
-1.0 points
Cyclical sector with commodity price volatility
Oil & gas earnings fluctuate with commodity prices
Financial Services
0.0 points
Neutral sector with balanced characteristics
Banks have stable fundamentals but regulatory constraints

Market Cap Adjustments

Mega Cap
> $200B
+1.0 point
Greater stability, lower volatility, dominant market positions
Large Cap
$10B - $200B
+0.5 points
Established companies with proven track records
Mid Cap
$2B - $10B
0.0 points
Balanced growth and stability characteristics (baseline)
Small Cap
$300M - $2B
-1.0 point
Higher growth potential but increased volatility risk
Micro Cap
< $300M
-2.0 points
Early stage, limited liquidity, higher business risk
Real-World Example

Two companies with identical fundamental metrics, but different sectors and market caps:

Company A (Tech, Mega Cap)
Base Score: 85.0
Sector Adjustment: +2.0
Market Cap Adjustment: +1.0
Final Score: 88.0
Company B (Energy, Small Cap)
Base Score: 85.0
Sector Adjustment: -1.0
Market Cap Adjustment: -1.0
Final Score: 83.0

Despite identical fundamentals, Company A scores 5 points higher due to its sector and size advantages. This reflects real market dynamics where tech giants trade at premium valuations compared to smaller energy companies.

Frequently Asked Questions

Common questions about our scoring system

StatsAlpha scoring is an analytical tool for understanding company financials, not investment advice. Scores provide context and comparison, but should never be the sole basis for investment decisions. Always conduct your own research and consult with financial advisors.

Industry-based scoring is our upcoming enhancement that applies sector-specific metrics and benchmarks instead of generic cross-industry comparisons. For example, REITs will be scored based on FFO and cap rates (metrics that matter for real estate), while banks will focus on NIM and loan quality. This industry-aware approach is core to StatsAlpha's vision and will roll out progressively, starting with REITs and banks, then expanding across our 45 industry clusters. Our current scoring system (explained on this page) provides a strong foundation that industry-based scoring will enhance.

Scores update when new financial data becomes available (typically quarterly). As companies report earnings, release balance sheets, and market conditions change, the underlying metrics shift, which affects pillar scores and the overall score. Historical tracking shows how scores evolve.

No. A high score indicates strong current fundamentals based on historical data, but it does not predict future stock performance. Past performance is not indicative of future results. Many factors beyond fundamentals (market sentiment, macro trends, unexpected events) affect stock prices.

Scores are recomputed asynchronously via scheduled background tasks (typically weekly) and whenever new financial data is ingested. You can see the 'Last Updated' timestamp on each company's scoring breakdown page.

Confidence reflects data availability. New IPOs, companies with limited reporting history, or those missing key financial metrics will have lower confidence. A low confidence score means we have less data to work with, making the score less reliable.

Currently, weights are standardized across all companies to ensure consistent comparisons. However, you can view detailed breakdowns by pillar and metric to understand which aspects matter most for your investment thesis. Custom weighting may be a premium feature in the future.

Some sectors (like Technology) naturally have different growth/valuation profiles than others (like Utilities). Sector adjustments (typically ±1-2 points) account for these structural differences, ensuring that a tech company isn't penalized for having high P/E ratios that are normal in its sector.

Pillar scores (Growth, Profitability, Health, Efficiency, Valuation) represent specific dimensions of financial performance. The overall score combines all 5 pillars (70% weight) with additional non-pillar metrics (30% weight) into a single comprehensive score (0-100). Think of pillars as individual test scores and the overall score as your final grade.
Important Disclaimer

StatsAlpha's scoring system is a tool for financial analysis and education, not investment advice. Scores do not predict future stock performance and should not be the sole basis for investment decisions. Past performance is not indicative of future results. Always conduct your own research and consult with qualified financial advisors before making investment decisions.

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