Methodology

Our analytical process combines elements of forensic accounting and criminal investigative techniques to analyze and rate publicly-held companies. We scour publicly-available information to evaluate transparency, candor, and directness in company communications. We believe significant information can be derived about an organization through analysis of management statements, responses to questions, and how financial information is presented. Our approach has resulted in our higher rated companies consistently outperforming the S&P500.

Our philosophy is to place the onus on the company to provide clear and transparent information to the investor. It is the company's responsibility to ensure stakeholders understand what they are doing and why. Any ambiguity, vague explanation, or inconsistency is viewed with suspicion.

Our research model contains 25-50 individual indicators that are quantified and weighted to generate consistent ratings across all companies evaluated. Indicators are designed to ferret out elements that increase the likelihood a company may restate results, have a material weakness, or other accounting/legal infraction. We are also searching for indications of future operational/business problems that affect an organization's ability to compete. Ratings are evaluated quarterly. Analysis is categorized into four primary sections:

Presentation of financial results Financial transparency- The level and quality of financial information provided by the company Earnings manipulation (management &/or smoothing)- Identify quantitative and qualitative traits that may indicate a company is utilizing its discretion to orchestrate results Form over substance- Evaluating organziations to determine if they are exhibiting indications of focusing on the perception of the results versus the actual results Management’s message on company position and outlook Excessive optimism or skewing of current/future state by management Management is more focused on comparing results to forecasts or analyst estimates versus the actual results Operational risks Transparency in strategic and tactical decisions- Clearness of company's plans Company risks- Identify exposures and evaluate how management is addressing them Merger/acquisition strategy Statements & actions surrounding recent mergers, acquisitions, and divestitures ("M&A") Risks associated with M&A