| Metric | Primary Focus | Core Strength | Main Weakness |
|---|---|---|---|
| EBITDA | Cash Profitability | Normalizes comparisons across different tax and debt structures. | Ignores capital expenditures and the cost of debt. |
| Altman Z-Score | Solvency Risk | Quantifies structural safety and bankruptcy probability. | Less accurate for asset-light service or tech industries. |
| Piotroski F-Score | Fundamental Trend | Effectively filters for quality and operational momentum. | Backward-looking; does not capture forward market shifts. |
| CCC (Cash Cycle) | Working Capital | Measures "Velocity"—the speed at which cash returns to the firm. | Can be misleading in highly seasonal businesses. |
| EVA (Wealth Creation) | Economic Profit | The "Truth" metric: Accounts for the hidden cost of capital. | Complex calculation; highly sensitive to management estimates. |
The Profit Mirage: Standard Net Income or EBITDA can be positive while EVA is negative. If a company doesn't earn more than its WACC, it is effectively a "zombie" destroying shareholder value over time.
Speed as a Moat: A shrinking Cash Conversion Cycle is often a better signal of dominance than revenue growth. It indicates the business can self-fund its own expansion without dilution or debt.
Safety Convergence: The ideal long-term compounder shows a rising F-Score (improving quality) while maintaining a Z-Score above 3.0 (financial integrity).
Wealth Creation Signal: The ultimate goal is identifying positive EVA growth. This represents the "surplus value" that drives market-beating returns over full economic cycles.
FOR INFORMATIONAL PURPOSES ONLY. NOT FINANCIAL ADVICE.