The Growth gauge score depends on the rate at which the company has increased the following quantities:

The Income Statement has the greatest effect on the Growth gauge, but data from the Balance Sheet and the Cash Flow Statement are also employed.

The Growth gauge is determined by calculating a score for each of the five quantities listed above. A weighted average of the scores is then scaled to set the minimum value at zero and the maximum value at 25 points.

We're tough graders: it's rare for a company to achieve a 25-point Growth score.

The scoring details are described below. Please note there is an overriding zero-point floor and a five-point ceiling for each growth component.

**Revenue Growth**

Using the quarterly Revenue figures on eight sequential Income Statements, the Revenue growth rate is found comparing Revenue in the last four quarters to Revenue in the four previous quarters.

1. If Revenue growth is negative (i.e., Revenue was less in the last four quarters), the score is zero points.

2.
If the growth rate exceeds 5 percent, then 0.15 points are given for
each percentage point above 5 percent, up to a total of 3 points. A
growth rate of 25 percent or higher would earn all 3 points. [0.15 *
(25 - 5)]= 3.

3. If the growth rate exceeds its four-year average, a bonus point is earned.

4. If the growth rate is greater than it was one year earlier, a bonus point is earned.

5.
If the latest growth rate exceeds the growth rate calculated after each
of the three previous quarters, a bonus point is earned.

6. The rules above could produce a score as great as 6 points. If the score is greater than five, it is reduced to five points.

**Revenue/Assets Growth**

For
each percentage point that the Revenue/Assets ratio is higher than it
was one year earlier, up to five percentage points, a point is awarded.

Revenue/Assets is found by dividing the Revenue in the last four quarters by the average Total Assets over these four quarters. It is expressed as percent.

This score rewards companies that grow their Revenue faster than they increase their Assets.

No points are given if Revenue/Assets is declining or if there was no Revenue growth.

If,
for example, Revenue/Assets increased from 83.2 percent to 85.5
percent, the score would be 3.3 points as long as Revenue also increased
from the previous year.

**Operating Profit Average Growth**

The
Operating Profit growth rate is the average 12-month rate of increase,
over the last 16 quarters, of Operating Profit after Taxes.

1. If Operating Profit growth is negative (i.e., Operating Profit is declining), the score is zero points.

2.
If the growth rate is positive, then the score is 20 * Operating Profit
growth rate (as a decimal), up to a total of 4 points. A growth rate
of 20 percent or higher would earn all 4 points. [20 * (0.2)]= 4.

3. If the latest Operating Profit growth rate exceeds the growth rate calculated one year earlier, a bonus point is earned.

**Net Income Growth**

The
Net Income growth rate is found by comparing Net Income in the most
recent four quarters to Net Income in the four previous quarters.

1. If Net Income growth is negative (i.e., Net Income is declining), the score is zero points.

2.
If the growth rate is positive, then the score is 20 * Net Income
growth rate (as a decimal), up to a total of 4 points. A growth rate of
20 percent or higher would earn all 4 points. [20 * (0.2)]= 4.

3.
If the latest Net Income growth rate exceeds the growth rate calculated
after each of the three previous quarters, a bonus point is earned.

**Cash Flow from Operations Growth**

The CFO growth rate is found by comparing CFO in the most recent four quarters to CFO in the four previous quarters.

1. If CFO growth is negative (i.e., CFO is declining), the score is zero points.

2.
If the growth rate is positive, then the score is 20 * CFO growth rate
(as a decimal), up to a total of 4 points. A growth rate of 20 percent
or higher would earn all 4 points. [20 * (0.2)]= 4.

3.
If the latest CFO growth rate exceeds the growth rate calculated after
each of the three previous quarters, a bonus point is earned.

**Determining the Growth Score**

We use the following weights for the different Growth score components:

- Revenue Growth (10)
- Revenue/Assets (35)
- Operating Profit Average Growth (10)
- Net Income Growth (25)
- Cash Flow from Operations (20)

The Growth gauge score is 5 * (the sum of each component score multiplied by its weight) / (100, the sum of the weights).

*This post was last modified on 30 July 2010.*