Aug 17 · 4 min read · share w/
TL;DR — Gradement helps the investor by systematizing the fundamental analysis of public companies. We reduce all the complexities of accounting, and all the information noise that today floods investors, to a series of normalized and easy to use ratings covering 21 important aspects of every company financials.
* Courtyard of one of the first Stock Exchanges. Amsterdam, circa 1670.
Investing is not an easy task. Don't believe anyone who tells you that with a couple of courses and books you get to know everything you need to know to start investing. Investment is a complex discipline that still lacks a sound theoretical framework. Gradement helps you in this difficult task of investing by systematizing the fundamental analysis of companies.
There are three fundamental aspects of investing to be analyzed for each company: its profitability, solvency and price. Gradement automates the calculation of these three important variables using what we consider to be the best and state-of-the-art accounting analysis techniques available. All within the frameworks of Value-Investing (mainly for calculating the price fairness rating) and the Austrian School of Economics (for calculating the proxy for the natural rate of interest).
Despite all the complexity involved in the calculation of these ratings, their use is extremely simple. All the resulting values have been normalized between 0 and 10.
For example, suppose a company with the following rating values in these categories:
This is a recurring pattern: very profitable and very solvent companies usually are very expensive. Everyone wants to have profitable and solvent companies in their portfolio, which increases their demand on the stock market and increases their market capitalization.
The best companies to invest in will be those that offer high rating values in all these three categories. In bull markets you will find fewer of these companies to invest. In bear markets it will be easier to find them. Gradement offers you a screener tool to search for such companies.
In order to facilitate the analysis, the Gradement rating unifies in a single number the value of these three fundamental ratings of profitability, solvency and price. The value of this rating has been calculated to be extremely conservative. It will only be investment grade (rating greater than 8) if all the other ratings of each of the other categories are above a certain threshold.
This way you can be sure that, by limiting your investment to high-value Gradement rating stocks, you will be investing in great companies from a quantitative point of view.
The risk of insolvency is perhaps the factor that most drastically, and suddenly, affects the quoted stock price. You can minimize the probability of investing in companies with insolvency risk by using our solvency rating.
Using this rating you can avoid investments in companies like Eastman Kodak, that filed for bankruptcy in 2012, or General Motors, that filed for chapter 11 in 2009. Since 2009 for Kodak and 2008 for General Motors, our solvency rating for both companies indicated a value of zero. Long before it became public and evident their insolvency.
In addition to the four ratings described above, Gradement calculates twenty-one additional ratings per company. These ratings are modified versions of already existing state-of-the-art accounting analysis techniques in different categories:
To manually compute all these ratings for a single company requires time. Gradement automatizes this process for you.
According to GAAP/IFRS accounting standards, the financial statements must present a true and fair view of the company. These financial statements are aimed at a heterogeneous public: future investors, partners, administrators, regulators, clients, suppliers, among others.
Using this GAAP/IFRS statements as a starting point, Gradement generates four new types of financial statements specially oriented to make investment decisions. These non-standard financial statements are:
Current accounting standards allow the definition of certain accounting parameters (amortization periods, provisions, cost calculations,... ) that make the net profit figure as shown in the income statement depend on certain decisions of the company directors, which opens the possibility, in exceptional cases, to accounting manipulations.
The cash flow figure is not subject to so much arbitrariness, so the free cash flow statement is a much more powerful and reliable tool for analyzing the company's earning power than the profit and loss statement.
The guides provide further information on all the ratings and financial statements offered by Gradement to help you with the quantitative part of your investment decision making.
Hope you like it and happy investing...