Chapter 19 · Day 19 — Screening, scoring and red flags
A screen and a scorecard that survive contact with reality
Filters narrow the list; they do not pick the stock. And a score is only honest if it is not counting the same thing three times.
23 of 30 · 13 min
A screen is a way to get from every listed company to a shortlist worth reading. It is not an answer.
| Filter | Purpose |
|---|---|
| Positive operating cash flow, 3 years | Removes companies whose profit is not cash |
| Positive free cash flow | Removes those that cannot self-fund |
| EPS growth over 3–5 years | Direction of earnings |
| ROE above sector median | Return quality, judged against peers |
| D/E below sector median | Balance-sheet risk, judged against peers |
| P/E and P/B against sector | Relative valuation |
| Dividend paid consistently | Evidence the cash is real |
A 100-point scorecard
| Area | Points | Looks at |
|---|---|---|
| Growth | 20 | Revenue, EPS, book value trends |
| Profitability | 20 | ROE, ROA, margins against sector |
| Financial health | 20 | Leverage, interest cover, liquidity |
| Valuation | 20 | P/E, P/B, EV/EBITDA against sector and own history |
| Cash flow | 10 | OCF ÷ profit, FCF |
| Dividend and capital allocation | 10 | Payout, sustainability, dilution history |
Sector adjustments
| Sector | Replace part of the score with |
|---|---|
| Banks | NPL, provision coverage, CAR, NIM, cost-to-income |
| Microfinance | Borrower vs loan-size growth, restructured loans, opex ratio |
| Hydropower | CUF, DSCR, debt/MW, remaining PPA years |
| Insurance | Combined ratio or persistency, solvency, investment yield |
| Manufacturing | Capacity utilisation, cash conversion cycle |
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