"Quality" is a vague word. Every investor agrees a quality company is good, and nobody agrees on how to measure it. To turn it into a single 0-100 number, we had to decide which metrics actually capture quality and which ones just look smart on a dashboard. Here is the reasoning behind the metrics the Intrinsiqq quality score uses, including why real estate trusts and banks get different rules.
Eight metrics, four questions
We did not want a soup of thirty ratios. More metrics feels rigorous but dilutes the signal: every weak metric you add drags the strong ones toward noise. So we forced the scorecard down to four questions a quality investor actually asks, with two metrics each.
| The question | The two metrics |
|---|---|
| Is it cheap enough? | Price to earnings, and price to free cash flow |
| Is it growing? | Revenue growth, and free cash flow growth |
| Is it well run? | Operating margin trend, and return on invested capital |
| Is it financially sound? | Share dilution, and net debt |
Each metric earns its place by answering something the others do not.
Why these specific eight
Valuation: earnings and cash flow. Price to earnings is the obvious one, but earnings can be massaged with accounting choices. So we pair it with price to free cash flow, which is much harder to fake, free cash flow is what is actually left after the business spends what it needs to. A company that looks cheap on earnings but expensive on cash flow is waving a flag, which is why we weight the cash-flow measure more heavily.
Growth: revenue and cash. Revenue growth shows demand. Free cash flow growth shows that the growth is turning into real money rather than just bookings. One without the other is a warning: fast revenue growth with no cash generation is how a lot of stories end badly.
Quality of the business: margins and returns. We deliberately look at the margin trend, not the absolute level. A 40 percent margin tells you about the past; a margin that is expanding tells you the business is getting stronger right now. And return on invested capital is the single best "is this actually a good business" number we know: it asks whether the company earns more than its cost of capital. A business that does not clear that bar is destroying value no matter how fast it grows.
Financial soundness: dilution and debt. Share dilution is the quiet killer of returns. A company can grow revenue ten percent a year and still erode your stake by quietly printing shares, so we reward buybacks and penalize heavy issuance. For debt, the key decision was to measure net debt relative to free cash flow, not in absolute dollars. A large debt number is terrifying for a small company and trivial for one generating enormous cash flow. What matters is whether the company can comfortably service it.
Why REITs get different rules
This is where most simple scoring breaks, and where we had to build a separate scorecard. A real estate investment trust looks terrible through a normal lens, and that is the lens's fault, not the company's. REITs own buildings, and accounting forces them to record huge depreciation charges every year as if their properties are steadily becoming worthless. In reality, well-located real estate often appreciates. That depreciation crushes reported earnings, so a price to earnings ratio on a REIT is close to meaningless.
The industry solved this long ago with a measure called Funds From Operations, which adds that non-cash depreciation back to get a truer picture of what the REIT actually earns. So our REIT scorecard throws out price to earnings and uses price to Funds From Operations instead. We also swap in the metrics that actually matter for a landlord business: dividend coverage, because REITs are income vehicles legally required to pay most of their income out, so the real question is whether they can sustain the dividend, and leverage measures like debt to earnings and interest coverage, because real estate is a debt-heavy business by nature. Forcing a healthy REIT through a standard scorecard would wrongly mark it as garbage.
Why banks get different rules too
Banks break the standard scorecard for a different reason: for a bank, debt is not a liability to minimize, it is the raw material of the business. A bank takes in deposits, which are debt, and lends them out. Penalizing a bank for having a lot of debt misunderstands what a bank is. Banks also do not have an operating margin in the normal sense.
So the bank scorecard swaps in the measures lenders are actually judged on: price to book value instead of price to cash flow, because banks are valued on the assets on their balance sheet; return on equity instead of return on invested capital; book value per share growth, the cleanest sign a bank is compounding; and capital adequacy, which asks whether the bank holds enough equity to absorb losses without collapsing. That last one is the metric regulators themselves watch most closely, for good reason.
See a live quality score, free
A 0-100 score from eight fundamental checks, computed from SEC filings, with the full per-metric breakdown.
Check MSFT's qualityThe principle underneath all of it
The lesson we kept relearning is that a quality score is only as good as its willingness to admit that "quality" means different things in different sectors. A single one-size scorecard is easy to build and quietly produces nonsense the moment it meets a bank or a REIT. The harder, more honest version recognizes that the right question for a software company is not the right question for a landlord or a lender. Every input is computed from data pulled straight from SEC filings, and the exact thresholds and weights are documented on our methodology page.