We wanted to keep thing simple, so here are our calculations method for calculating ratings with fundamental data for companies.
1. Data for calculations
We take the following fundamental data items in our calculations;
DCF - Discounted Cash Flow
ROE - Return on Equity
ROA - Return on Assets
Debt to equity ratio
Price to earnings ratio
Price to book ratio
With the above data items, we then come up with a range of values for our calculations. i.e.
DCF: [ 0.3, 0.05, -0.1, -0.3 ]
ROE: [ 0.3, 0.05, -0.1, -0.3 ]
ROA: [ 0.3, 0.05, -0.1, -0.3 ]
Debt to equity ratio: [ 2, 0.5, -0.5, -3 ]
Price to earnings ratio: [ 8, 0.5, -0.5, -3 ]
Price to book ratio: [ 1, 0.5, -0.5, -2 ]
Total Score: [ 25, 20, 15, 10 ]
Every number in brackets represent part of range that is used to determine score and recommendation.
First number is the best and last number is the worst.
2. Rating score
At the end of the day, we will calculate the ratings as;
Strong Buy
Buy
Neutral
Sell
Strong Sell
3. Individual calculations
Detailed breakdown of ranges:
If value is higher than first number in brackets, the score will be 5 and recommendation would be "Strong Buy".
If value is higher than second number and lower than first number, the score will be 4 and recommendation would be "Buy".
If value is higher than third number and lower than second number, the score will be 3 and recommendation would be "Neutral".
If value is higher than fourth number and lower than third number, the score will be 2 and recommendation would be "Sell".
If value is lower than fourth number, the score will be 1 and recommendation would be "Strong Sell".
3. How 'main ratings' get calculated?
To calculate main rating for stock we add scores of other individual values. We apply following condition to come up with 'main rating';
If score is higher than 30, rating would be "S+"
If score is higher than 28 and lower than 30, rating would be "S"
If score is higher than 26 and lower than 28, rating would be "S-"
If score is higher than 24 and lower than 26, rating would be "A+"
If score is higher than 22 and lower than 24, rating would be "A"
If score is higher than 20 and lower than 22, rating would be "A-"
If score is higher than 18 and lower than 20, rating would be "B+"
If score is higher than 16 and lower than 18, rating would be "B"
If score is higher than 14 and lower than 16, rating would be "B-"
If score is higher than 12 and lower than 14, rating would be "C+"
If score is higher than 10 and lower than 12, rating would be "C"
If score is higher than 8 and lower than 10, rating would be "C-"
If score is higher than 6 and lower than 8, rating would be "D+"
If score is higher than 4 and lower than 6, rating would be "D"
If score is higher than 2 and lower than 4, rating would be "D-"
To access: From the top menu, click on 'Menu' button > Ratings
Please note that the above ratings are purely for education purpose and does not constitute any recommendations of any type of trading at all. Please take this purely for education purposes only.
