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Methodology

Documentation

The math behind every score.

Every score in a Sentinellis report is derived from public financial data using established academic models — not opaque proprietary blends. Here are the formulas, inputs, and how to read each output.

Where “about two hours” comes from

The work one brief represents

A brief is roughly two hours of company research. That is a claim about the work, so here is the work — every step a person would take to end up holding what one brief holds, with an honest range on each. The estimates assume someone who knows what they are doing and is not learning the formulas as they go.

StepLowHigh
Find and open the latest annual report38
Transcribe three statements, three to four years1540
Margins, ROE, ROA512
ROIC and WACC (beta, risk-free rate, ERP, cost of debt, tax, structure)1535
Altman Z-Score (five ratios)615
Piotroski F-Score (nine tests, needs the prior year too)1230
CAGRs: revenue 3/5/10y, EPS 3/5y, EBITDA 3y825
Cash conversion cycle (DSO, DIO, DPO)615
Enterprise value and eight multiples820
Liquidity and leverage ratios512
Scan a week of news, deduplicate it, judge what is actually relevant1545
Executive team and reported pay1025
Six months of price against a benchmark, beta, unusual days1030
Write it up in plain English with the sources attached1540
Total, in minutes133352

That is 2h13m to 5h52mworking from the companies’ own reports. If instead you lean on a free screener that already computes the statements, the multiples, the margins, the liquidity ratios and the price chart, the work that remains is still 99 minutes — a floor of about 1h39m even with good free tools.

We quote about two hours because it sits below the low end of the first estimate and just above the floor of the second. It is the conservative number, not the flattering one.

What this is not. It is not a claim that you personally spend two hours per company — most people, reasonably, spend far less, which is rather the point. It is not multiplied into a weekly or monthly figure. And we do not do every step above from primary documents: we read no filings ourselves, and executive pay is reported by our sources rather than derived from a proxy statement. Where a figure was computed by us rather than read from a source, the brief marks it as estimated.

Sentinellis Health Score (0–10)

Composite score across 6 categories

A weighted blend across six fundamental categories, normalized to a 0–10 scale. Companies are penalized when data is missing rather than getting a free pass. We added gross margin, ROE, and debt/equity checks after noticing healthy companies (ASML, Tesla) were scoring 3.5/10 under an older formula that capped at 8.0 and skipped missing inputs.

Profitability (gross/op/net margins, ROE)~25%
Efficiency (ROIC, asset turnover)~20%
Leverage (debt/equity, interest coverage)~15%
Growth (revenue & EPS CAGR, momentum)~15%
Liquidity (current ratio, FCF, cash position)~15%
Solvency (Altman Z-Score, fundamentals)~10%

Strong (≥7)

Multiple positive signals across categories

Mixed (4–7)

Some strengths, some concerns

Weak (<4)

Multiple red flags or fundamentals missing

Piotroski F-Score (0–9)

Joseph Piotroski, 2000 — fundamental strength check

A nine-point binary scorecard testing profitability, leverage, liquidity, and efficiency. Each test passed earns one point. Originally developed by Stanford accounting professor Joseph Piotroski to identify financially strong companies in the value segment of the market.

1Positive net incomeProfitability
2Positive operating cash flowProfitability
3ROA improvement YoYProfitability
4Operating cash flow > net incomeProfitability
5Long-term debt decreased (or stayed flat)Leverage
6Current ratio improved YoYLiquidity
7No new shares issued (no dilution)Leverage
8Gross margin improved YoYEfficiency
9Asset turnover improved YoYEfficiency

Reading the score

  • 8–9: Strong fundamentals across categories
  • 4–7: Mixed — investigate the categories failing
  • 0–3: Weak fundamentals; deeper due diligence required

Sentinellis awards partial credit when a Piotroski input is missing rather than scoring it as failed. Stated explicitly in each report so you can audit the score.

Altman Z-Score

Edward Altman, 1968 — bankruptcy risk predictor

A weighted formula combining five financial ratios to estimate bankruptcy probability over the next two years. Developed by NYU Stern professor Edward Altman in 1968 and widely used in academic and lending contexts.

Z = 1.2·X1 + 1.4·X2 + 3.3·X3 + 0.6·X4 + 1.0·X5
X1Working capital / total assets
X2Retained earnings / total assets
X3EBIT / total assets
X4Market value of equity / total liabilities
X5Sales / total assets

Safe (Z > 2.99)

Low bankruptcy risk

Grey (1.81–2.99)

Investigate further

Distress (Z < 1.81)

Elevated bankruptcy risk

ROIC vs WACC (value creation)

The single most important question in fundamentals

ROIC — Return on Invested Capital

How much profit the business earns per dollar of capital invested in operations.

ROIC = NOPLAT / Invested Capital

Where NOPLAT = EBIT × (1 − tax rate); Invested Capital = total debt + equity − cash & equivalents

WACC — Weighted Average Cost of Capital

The blended cost of the capital the business raised — debt plus equity, weighted by the proportion of each.

WACC = (E/V)·Re + (D/V)·Rd·(1−t)

Where E = equity, D = debt, V = E + D, Re = cost of equity (CAPM), Rd = cost of debt, t = tax rate. Sentinellis sets debt_weight = 1 − equity_weight to keep them consistent.

The spread (ROIC − WACC)

When ROIC > WACC, the business creates value with every dollar reinvested. When ROIC < WACC, growth destroys value — the firm would be better off returning cash to shareholders. This single ratio is one of the most predictive signals of long-term equity returns.

Confidence Score (1–10)

How much to trust this specific report

Every report carries a confidence score reflecting how much source data was available. The score is set during AI synthesis based on:

  • ·35% financial data completeness — were all key statements available?
  • ·30% legal & jurisdictional clarity — is the entity well-defined and tracked?
  • ·35% market sentiment / news coverage quantity & quality

A confidence of 8–10 means we had rich data and high-tier sources. A score of 5–7 means a known gap (e.g., missing financials). Below 5 means treat the report as exploratory only.