This glossary explains the main terms used in the Stedrok framework in plain language. These are the same concepts the engine applies when it scans 5,900+ companies 2x daily.
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Capital allocation refers to how management deploys the cash the business generates: reinvestment into operations, acquisitions, dividends, buybacks, or debt repayment. Disciplined capital allocation compounds shareholder value; poor allocation — such as overpriced acquisitions or value-destructive buybacks — erodes it. Stedrok evaluates capital allocation quality through ROIC on incremental capital, buyback timing, and M&A track record as part of the Quality Score.
Current assets divided by current liabilities. Measures whether a company can pay its short-term debts. A ratio below 1 means the company might struggle to meet near-term obligations.
Discounted Cash Flow is a valuation method that estimates the intrinsic value of a business by projecting future free cash flows and discounting them back to the present using a rate that reflects the risk of those cash flows — typically the weighted average cost of capital (WACC). A lower discount rate or higher projected cash flows produce a higher DCF valuation; a higher discount rate or slower projected growth reduces it.
DCF is theoretically the most rigorous valuation approach because it anchors value in the actual economics of the business rather than market comparisons. In practice, its output is sensitive to growth rate and discount rate assumptions, which is why Stedrok uses DCF as one component of a composite Fair Value estimate rather than relying on it alone.
Total debt divided by total equity on the balance sheet. A high ratio means the company uses a lot of borrowed money relative to what shareholders own. Stedrok treats high debt as a red flag for balance sheet risk.
The Dip Score is Stedrok’s price context pillar score. It measures how far the current price sits below the 52-week high, expressed as a percentage drawdown. A moderate pullback — where the stock has retreated meaningfully from its peak but is not in free fall — produces a higher Dip Score, rewarding constructive entry conditions.
The Dip Score is the fourth and lightest-weighted pillar in the composite Total Score. It is not a momentum signal and does not predict price direction. Its role is to distinguish between a sound business at a fair price and the same sound business at a temporarily depressed price — which historically offers a better risk-adjusted entry for patient investors.
The percentage gap between a stock’s current market price and Stedrok’s estimated Fair Value, calculated as: Discount % = (Fair Value − Market Price) ÷ Fair Value × 100. A positive Discount % means the stock is trading below Fair Value — the wider the gap, the larger the margin of safety. A negative Discount % (a premium) means the stock is trading above Stedrok’s estimated intrinsic worth.
Discount % is the most direct output of the valuation pillar. Stocks with a high positive Discount % are the primary candidates for BUY ratings when the Quality Score and Risk Score also pass their respective thresholds.
The distance from a recent peak price to the current price, expressed as a percentage. Stedrok looks at drawdowns to understand whether a stock has pulled back to a level that might be interesting for a value investor.
An economic moat — a term popularised by Warren Buffett — is a durable competitive advantage that protects a company’s profitability from competitors over time. Moat sources include network effects, switching costs, cost advantages, intangible assets (patents, brands), and efficient scale. Stedrok proxies moat strength using multi-year ROIC stability, gross margin trends, and pricing power indicators within the Quality Score.
Enterprise Value is the total takeover cost of a business: market capitalisation plus net debt (total debt minus cash and cash equivalents). It represents what an acquirer would effectively pay to own the company outright, free of financial structure distortions. Stedrok uses EV as the numerator in EV/EBITDA and EV/FCF calculations to normalise valuations across companies with different capital structures.
EV/EBITDA divides enterprise value by earnings before interest, taxes, depreciation, and amortisation. It is one of the most widely used cross-sector valuation multiples because it strips out capital structure and accounting differences. Stedrok compares each company’s EV/EBITDA to its sector median; stocks trading at a meaningful discount to peers score higher on the value dimension.
Fair Value is Stedrok’s estimated intrinsic value per share for each covered stock, updated every trading day. It is calculated using a composite model that combines discounted cash flow (DCF) analysis, EV/EBITDA multiples benchmarked against sector medians, and free cash flow yield comparisons — reducing reliance on any single method.
Fair Value is not a price target or a prediction of where the stock will trade. It is an estimate of what the underlying business is worth today based on its reported financials and normalised earnings power. The gap between the current market price and Fair Value is expressed as the Discount %, which is the primary input to the Value Score.
Free Cash Flow is the cash a business generates from its operations after deducting capital expenditure — the money spent maintaining or expanding the asset base. The basic formula is: FCF = Operating Cash Flow − Capital Expenditure.
FCF is widely considered the most honest measure of a company’s cash-generating ability because it is harder to manipulate through accounting choices than reported earnings. Free cash flow can be used to pay down debt, return cash to shareholders through dividends or buybacks, or reinvest in the business. Stedrok uses FCF as a core input across multiple valuation metrics, including P/FCF and Free Cash Flow Yield.
Annual free cash flow divided by market capitalisation, expressed as a percentage. It shows how much real cash the business generates for every dollar of market value — a higher yield indicates better value, all else equal.
A FCF yield above 7% is often cited as a marker of potential undervaluation for a stable, capital-light business. Stedrok uses FCF yield as one of the benchmarking inputs in its composite Fair Value model.
The Graham Number is a formula devised by Benjamin Graham to estimate the maximum fair price for a defensive value stock: the square root of (22.5 times earnings per share times book value per share). The 22.5 multiplier derives from Graham’s rule of thumb that a sound stock should not simultaneously trade above 15× earnings and 1.5× book value (15 × 1.5 = 22.5). It provides a conservative upper bound on valuation by combining both earnings power and asset value.
Stedrok references the Graham Number as one input in the value score for dividend-paying, asset-backed businesses where Graham’s original framework applies best.
The interest coverage ratio divides a company’s operating earnings (EBIT) by its interest expense. It shows how many times over the business can pay its debt interest from operating profits — a ratio below 2× is a red flag. Stedrok penalises low interest coverage in its Risk Score because interest burden becomes dangerous when earnings deteriorate.
Intrinsic value is the present value of all future cash flows a business is expected to generate, discounted at an appropriate rate. It is the anchor concept in value investing: the goal is to buy assets trading below their intrinsic value to create a margin of safety. Stedrok estimates intrinsic value for each covered stock using a composite DCF and multiple-based model, updating the estimate each trading day.
Margin of safety is the gap between a stock’s estimated intrinsic value and its current market price, expressed as a percentage. The concept was formalised by Benjamin Graham: buying at a 30–50% discount to intrinsic value builds in a buffer that protects the investor if valuation assumptions prove too optimistic or the business hits unexpected difficulty.
A wide margin of safety does not guarantee a profit, but it limits the downside if the analysis turns out to be wrong. Stedrok flags stocks with the largest positive Discount % as the strongest BUY candidates — this gap between price and Fair Value is the practical expression of Graham’s margin of safety principle.
Net Asset Value is total assets minus total liabilities — the accounting book value of equity. For asset-intensive companies such as real estate, mining, and insurance, NAV is often a more reliable valuation anchor than earnings-based multiples. Stedrok uses estimated NAV alongside earnings-based metrics to score companies in asset-heavy sectors, flagging stocks trading at steep discounts to asset value.
Net Debt to EBITDA measures how many years of operating earnings it would take a company to repay its net debt (total borrowings minus cash and cash equivalents). It is one of the most widely used leverage ratios by credit analysts and institutional investors.
A ratio below 2× is generally considered conservative. Between 2× and 4× signals moderate leverage that warrants monitoring. Above 4× raises serious balance sheet concern, particularly if earnings are cyclical or margins are narrow.
Stedrok uses Net Debt / EBITDA as a primary resilience gate. Companies with ratios above the sector threshold receive a lower Risk Score, which can cap the overall rating at WATCH even when Value and Quality scores are strong. This is intentional — cheap and leveraged is not the same as cheap and sound.
The PEG ratio adjusts the price-to-earnings ratio for expected earnings growth: PEG = P/E ÷ annual EPS growth rate. A PEG below 1.0 is often cited as indicating a growth stock trading at a value price. Stedrok uses a modified PEG concept in scoring growth-oriented technology and healthcare companies where current P/E alone understates long-term earning power.
The Pick Score is the output of the AI Hybrid lane — the highest-conviction layer of the Stedrok research process. Candidates are evaluated using live internet validation, multi-source news integrity checks, and independent evidence verification before being promoted to the published list.
A stock earns a Pick Score only when it clears a strict confidence-ranking gate that includes evidence quality thresholds and a final Gemini-grounded integrity review. This conviction framework is designed to surface only the ideas where the margin of safety is robust under current market conditions.
The Piotroski F-Score is a nine-point scoring system that measures the financial health of a company using publicly available accounting data. It was developed by academic Joseph Piotroski and published in 2000.
The score combines three groups: profitability signals (return on assets, operating cash flow, change in ROA, accruals ratio), leverage and liquidity signals (change in leverage, change in current ratio, absence of share dilution), and operating efficiency signals (change in gross margin, change in asset turnover). Each test passes or fails. A company can score between zero and nine.
Stedrok uses F-Score components as part of the quality and resilience evaluation. Companies scoring seven or above signal improving fundamentals; scores below three indicate deteriorating health and raise the risk penalty in the composite score.
The price-to-book ratio compares a company’s market capitalisation to its net asset value on the balance sheet. A P/B below 1.0 implies the market values the company below what its assets are worth after liabilities — a classic Graham-style value signal. Stedrok incorporates P/B in its value score, particularly for asset-heavy sectors such as financials, industrials, and basic materials.
The P/E ratio divides a company’s share price by its earnings per share (EPS), answering the question: how much are investors paying for each dollar of current earnings? A P/E of 15 means investors are paying $15 for every $1 of annual earnings.
Trailing P/E uses the most recent 12 months of reported earnings. Forward P/E uses analysts’ consensus earnings forecast for the next 12 months. Trailing P/E is more reliable because it is based on reported facts; forward P/E embeds estimation risk.
Context matters critically: a low P/E can mean genuine undervaluation, but it can also signal deteriorating earnings, a cyclical trough, or structural decline. P/E is unreliable for companies with negative earnings, heavy non-cash charges, or highly cyclical profits. Stedrok uses P/E alongside EV/EBITDA, P/FCF, and DCF-derived estimates to form a rounded valuation view rather than relying on any single multiple.
Price to Free Cash Flow divides a company’s market capitalisation by its annual free cash flow — the cash the business generates after capital expenditure. Unlike earnings-based ratios, P/FCF is harder to distort through accounting choices, making it a more reliable measure of what investors are actually paying for real cash production.
A lower P/FCF generally indicates better value, though the appropriate threshold varies by sector and growth rate. Capital-light businesses in stable industries with a P/FCF below 15× often signal genuine undervaluation. Asset-heavy industries typically carry higher multiples.
Stedrok incorporates P/FCF as a core valuation input alongside EV/EBITDA and DCF-derived intrinsic value estimates. All three are combined to reduce the noise from any single metric.
The Quality Score is Stedrok’s internal score for the business quality pillar. It measures the durability and consistency of a company’s financial performance rather than a single-year snapshot. Primary drivers include ROIC stability across multiple years, gross margin trends, revenue consistency, and capital allocation efficiency.
Sustained high ROIC is the dominant quality signal because it indicates the business earns above its cost of capital consistently — a hallmark of a genuine economic moat. Piotroski F-Score components feed into the Quality Score as additional evidence of improving or deteriorating fundamentals. A strong Quality Score combined with a strong Value Score is the combination that most reliably produces BUY ratings in the Stedrok framework.
Net income divided by shareholders’ equity. It measures how efficiently a company uses shareholder capital to generate profit. Higher ROE generally indicates stronger operating performance, though it can also be inflated by high financial leverage — a heavily indebted company can report a high ROE even with modest earnings, which is why Stedrok evaluates ROE alongside debt ratios rather than in isolation.
ROIC measures how efficiently a company generates after-tax operating profit from the total capital deployed in the business (equity plus interest-bearing debt). A ROIC consistently above the company’s cost of capital signals a genuine competitive advantage and value-creating management. Stedrok rewards high and stable ROIC in its Quality Score because it identifies durable moat businesses rather than cyclical earnings spikes.
The Risk Score is Stedrok’s internal score for the balance sheet resilience pillar. It evaluates a company’s ability to withstand financial stress using metrics including Net Debt / EBITDA vs sector thresholds, interest coverage ratio, current ratio, and solvency flags.
The Risk Score acts as a gate in the composite rating system. If a company fails to meet the minimum resilience threshold, its overall rating is capped at WATCH regardless of how strong the Value Score and Quality Score are. This design reflects a core principle of the Stedrok framework: a cheap price does not justify a fragile balance sheet. Capital preservation is a prerequisite for compounding wealth.
The Total Score is Stedrok’s composite ranking score, combining all four pillars — Value Score, Quality Score, Risk Score, and Dip Score — into a single 0–100 figure used to rank stocks across the covered universe.
Value carries the highest weighting in the composite. The Risk Score (resilience) acts as a gate — companies that fail the balance sheet check have their Total Score capped regardless of how attractive the valuation appears. The Total Score determines the final rating: companies scoring in the top range receive a BUY label, mid-range scores receive WATCH, and low scores receive AVOID. It is updated 2x daily as price and fundamental data refresh.
The Value Score is Stedrok’s internal score for the valuation pillar. It measures how attractively priced a stock is relative to its estimated Fair Value and peer group, synthesising multiple valuation approaches to avoid over-reliance on any single metric.
Inputs include the Discount % (market price vs DCF-derived Fair Value), EV/EBITDA relative to sector median, P/FCF relative to sector median, and P/B where relevant for asset-heavy businesses. Value carries the highest weight in the composite Total Score because buying at a significant discount to intrinsic value is the primary driver of long-term risk-adjusted returns in the Stedrok framework.
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