Score and valuation method
This page explains how Lothien's scores and intrinsic value estimates are produced. The figures are the output of rule-based models and are not investment advice.
Lothien Robustness Score
The score ranges from 0 to 100 and is a weighted combination of up to eleven sub-scores. Each sub-score is computed automatically by fixed rules from published financial statements and price data, and the rules are applied to every covered stock in the same way. A sub-score that cannot be measured is left out of the total and the remaining weights are rescaled. If no sub-score can be measured, no score is published.
Sub-scores
- Upside potentialThe ratio of estimated intrinsic value to price. It is limited by a logarithmic scale so that extreme values do not inflate the score.
- Damodaran valuationA quality score built from discounted cash flow, return on invested capital and relative valuation outputs.
- Dalio riskA risk score built from leverage, debt service and the Altman Z indicator.
- Margin of safetyThe gap between intrinsic value and price (the Graham and Buffett approach).
- Earnings qualityFor industrial companies: return on equity, current ratio, interest coverage and debt to equity. For banks: return on assets, net interest margin, cost of risk and capital adequacy.
- ConsistencyThe number of metrics that can be computed and the adequacy of the data.
- Earnings momentumThe earnings trend over the latest quarters.
- Factor scoreFactor indicators derived from price and fundamental data; they are used only in markets where they have been tested.
- Piotroski F-scoreA nine-criterion indicator of accounting soundness; used only for industrial and service companies.
- Value (cheapness)The relative position of the price-to-earnings ratio within the sector.
- Low volatilityThe position of the realised price volatility of the last 60 days relative to the market.
Weights
Weights vary by sector: risk components weigh more for financial companies, growth for technology companies, and margin of safety together with the Damodaran component for energy and industrial companies; other sectors use balanced weights. Where a market has sufficient and meaningful calibration data, weights may be shifted toward the information coefficients observed in that market; otherwise the fixed sector weights remain unchanged.
Discounted cash flow (DCF, Damodaran approach)
The company's future cash flows are projected and discounted to the present at the cost of equity. Cost of equity = risk-free rate + beta x (mature market risk premium + country risk premium) + size premium. The country risk premium is a country default spread multiplied by a coefficient. Long-term growth, the tax rate and the projection period are fixed assumptions. The table below shows the fixed parameters used for each exchange; they contain no company-specific expectation.
| Exchange | Risk-free rate | Mature market risk premium | Long-term real growth | Tax rate | Projection (years) |
|---|---|---|---|---|---|
| BİST | %30.0 | %5.5 | %3.0 | %25 | 5 |
| KASE | %14.0 | %5.5 | %3.0 | %20 | 5 |
| US | %4.5 | %5.5 | %2.5 | %21 | 5 |
| DSE | %12.0 | %5.5 | %2.0 | %28 | 5 |
| EGX | %22.0 | %5.5 | %3.0 | %22 | 5 |
| Tadawul | %5.5 | %5.5 | %3.0 | %20 | 5 |
| DFM | %5.0 | %5.5 | %3.0 | %9 | 5 |
| QSE | %5.0 | %5.5 | %3.0 | %10 | 5 |
| CSE | %3.5 | %5.5 | %3.0 | %31 | 5 |
| ASE | %6.5 | %5.5 | %2.5 | %20 | 5 |
| MOEX | %16.0 | %5.5 | %2.0 | %20 | 5 |
| LSE | %4.5 | %5.5 | %2.0 | %25 | 5 |
| Xetra | %2.5 | %5.5 | %2.0 | %30 | 5 |
| NORDIC | %2.5 | %5.5 | %2.0 | %22 | 5 |
| BRVM | %6.0 | %6.5 | %3.0 | %25 | 5 |
| Euronext | %2.5 | %5.5 | %2.0 | %25 | 5 |
| Japonya Borsası | %1.0 | %5.5 | %1.0 | %23 | 5 |
| Çin Borsası | %2.2 | %5.5 | %3.0 | %25 | 5 |
| Hindistan Borsası | %7.0 | %5.5 | %4.0 | %25 | 5 |
| Hong Kong Borsası | %4.0 | %5.5 | %2.0 | %16 | 5 |
| Kore Borsası | %3.5 | %5.5 | %2.0 | %22 | 5 |
| Güney Afrika Borsası | %9.0 | %5.5 | %2.0 | %27 | 5 |
| Avustralya Borsası | %4.0 | %5.5 | %2.5 | %30 | 5 |
| Brezilya Borsası | %11.0 | %5.5 | %2.0 | %34 | 5 |
| Tayvan Borsası | %1.5 | %5.5 | %2.5 | %20 | 5 |
| Singapur Borsası | %3.0 | %5.5 | %2.0 | %17 | 5 |
| Avusturya Borsası | %2.8 | %5.5 | %1.8 | %24 | 5 |
Graham number
The Graham number is the square root of 22.5 x earnings per share x book value per share; the 22.5 multiplier is 15 times earnings multiplied by 1.5 times book value, both treated as reasonable. Earnings per share is derived from the net profit of the last four quarters and book value from equity attributable to the parent. It contains no future cash flow and no discount rate.
Why Graham and DCF differ
The two methods measure different things. The Graham number rests on trailing twelve-month earnings and book value; DCF rests on future cash flows and an exchange-specific discount rate. In a high interest rate and inflation environment the risk-free rate is high, so the DCF value can differ widely from a Graham number that looks at past earnings. The two figures do not confirm each other; they are separate estimates based on different assumptions, and a large gap between them is a sign of model uncertainty.
Data and dates
Financial statements belong to the latest period the company has published; price data may be delayed. The data date in the record is the date of the last run in which the score was computed; the balance sheet period and the price date are not the same thing. Runs are scheduled for weekday evenings; this is a schedule, and not every symbol is necessarily refreshed in every run. Where four quarters have not been published, annual figures may be scaled from the available quarters.
Limitations
- It has not been shown that the score predicts future returns. Backward-looking information coefficients are published on the Score Card page.
- Scores are affected by errors in financial statements and price data; if data is missing, a score may not be computed.
- Company-specific expectations, management quality, news flow and the macroeconomic outlook are outside the model.
- Per-share values are computed by treating paid-in capital as the share count. This is correct for shares with a nominal value of 1 unit and causes deviations for other nominal values.
- Model parameters are fixed and reviewed from time to time; the table on this page always shows the current values.
Error correction
If you see an error in a score or in the data, you can report it on the feedback page; reports are reviewed and confirmed errors are corrected.
Conflict of interest and warning
No statement has been published on whether MIDAK, the operator of Lothien, or its team hold positions in these stocks. The figures are produced automatically by the same rules, without regard to any such position.
This information is not within the scope of investment advisory services and is not investment advice. The figures are the output of rule-based models and may not suit your financial situation or your risk and return preferences. Making an investment decision on the basis of this information alone may not lead to results that meet your expectations.