Valuation tells you what you pay; quality metrics tell you what you get. They measure how good the underlying business actually is - how much profit it squeezes from capital, how fat its margins are, and whether the reported earnings are real cash or accounting optimism. A cheap price on a bad business is not a bargain, which is why every serious screen pairs a valuation leg with a quality leg.

All figures in the ValueMap screener are trailing twelve months (TTM), and percent-type metrics display as percentages.

ROE

What it is: ROE stands for return on equity: annual profit divided by the capital shareholders have in the business. It measures how hard the owners’ money is working - an ROE of 15% means every dollar of equity produced fifteen cents of profit this year.

Why value investors care: It is the classic scorecard for a compounding machine. Above 15% is good; above 20% sustained for years is excellent and usually means something structural is protecting the returns. Below 10% for a decade, the business is a savings account with extra steps. The trap is leverage: debt shrinks the equity denominator, so a mediocre business with heavy borrowing can print a 25% ROE right up until the credit cycle turns. Never admire an ROE without reading Debt/Equity next to it - the same 25% means opposite things at zero leverage and at 3x.

ROIC

What it is: ROIC stands for return on invested capital: after-tax operating profit measured against all the capital the business employs - debt and equity alike, net of idle cash. It is the leverage-proof version of ROE, because borrowing more money cannot flatter it.

Why value investors care: This is the number that decides whether growth is worth having. Above 15% sustained over years is the statistical signature of a moat - competition should have arbitraged those returns away, and the fact that it couldn’t means something is standing guard. Below roughly 8%, the company probably earns less than its cost of capital, which means every dollar it reinvests destroys value no matter how fast revenue grows. The caveat: acquisitions and write-downs warp the invested-capital base, so judge the multi-year pattern, never a single reading.

ROCE

What it is: ROCE stands for return on capital employed: pre-tax, pre-interest operating profit divided by the capital actually tied up in operations. By ignoring tax rates and financing choices it makes businesses in different countries and capital structures directly comparable.

Why value investors care: This is Greenblatt’s quality leg in the Magic Formula - his whole system is buying high-ROCE businesses at high earnings yields. Above 20% is excellent; above 15% is good; single digits sustained means the capital would be better deployed elsewhere. The trap sits with capital-light businesses that lease everything: their capital employed is understated, the ratio flatters accordingly, and two retailers can show wildly different ROCE purely because one owns its stores and the other rents them.

Gross Margin

What it is: Gross margin is the first cut of profitability: what remains from each dollar of sales after the direct cost of producing what was sold, before any overhead, marketing, or interest. It measures the raw spread between what the product costs to make and what customers will pay.

Why value investors care: Above 40% usually signals pricing power - customers are paying well over cost, and something stops competitors from undercutting. But the level matters less than the stability: a gross margin holding steady or expanding for five-plus years is the accounting fingerprint of a moat, and a sliding one is often the earliest visible sign of erosion, showing up before earnings crack. Compare within industry only - 25% is superb for a grocer and alarming for software, and cross-sector comparisons of this number tell you nothing.

Net Margin

What it is: Net margin is the bottom line as a fraction of sales: what shareholders keep from every dollar of revenue after suppliers, employees, lenders, and the taxman have all been paid. It is the final, all-inclusive profitability number.

Why value investors care: Above 10% sustained is a genuinely profitable business; above 20% is exceptional and usually means software-like economics. But the scale is brutally industry-dependent - groceries live at 2-3% and are fine, while 15% would be mediocre for enterprise software, where 25%+ is normal. Screen within a sector or not at all. The trap: because it sits at the very bottom of the income statement, net margin absorbs every one-off gain and charge, so a single year can lie in either direction. Read the five-year pattern before believing it.

Income Quality

What it is: Income quality is operating cash flow divided by net income - a check on whether the profits in the income statement actually arrived as cash. It is the lie detector of the financial statements.

Why value investors care: Above 1 means earnings are cash-backed: for every dollar of reported profit, at least a dollar of cash came through the door. Persistently below 0.8 is an accrual red flag - revenue booked but not collected, expenses deferred, profits that exist on paper and nowhere else. Companies that later restate their earnings almost always showed this pattern first. One weak year can be an innocent working-capital swing; three in a row is a reason to walk away regardless of how cheap the stock has become - cheapness built on fictional earnings is not cheapness.

SBC / Revenue

What it is: SBC stands for stock-based compensation: pay delivered in shares and options rather than cash, here measured against revenue. No money leaves the building - your ownership leaves instead, share by share, into employee accounts.

Why value investors care: Below 2% of revenue is clean. Around 5% is heavy. Above 10%, shareholders are effectively funding the payroll through dilution, and any “adjusted” profit figure that excludes SBC is fiction - in parts of tech this line runs past 15% of revenue while the company calls itself profitable. Pair it with the gap between basic and diluted share count: if both are climbing, the dilution machine is running at full speed. The trap is the bull argument that SBC is non-cash and therefore not real; Buffett’s answer stands - if options aren’t compensation, what are they, and if compensation isn’t an expense, what is it?

Piotroski F-Score

What it is: The Piotroski F-Score is Joseph Piotroski’s nine-point financial-health checklist, scored 0-9. Each point is a binary test: is the company profitable, is operating cash flow positive and above net income, is leverage falling, are margins and asset turnover improving, did the share count hold steady, and so on.

Why value investors care: 8-9 is strong; 0-2 is historically a shorting signal and an automatic avoid. But use it where it was designed to work: Piotroski built it to separate the survivors from the value traps inside a universe of cheap, low-PB stocks, and that is exactly where its edge showed up in his research. It says nothing about price - a perfect 9 can be wildly overvalued - so treat it as a filter you run on stocks that already screen cheap, never as a buy list on its own.

Bottom Line Profit Margin

What it is: An FMP near-duplicate of Net Margin - same numerator, same denominator, different label from the data provider.

Why value investors care: They don’t, separately. Use Net Margin and its thresholds and skip this field.

Continuous Operations Profit Margin

What it is: Another FMP near-duplicate of Net Margin, differing only when a company has recently discontinued or sold off a segment.

Why value investors care: Only if you are analyzing exactly that situation - a business mid-divestiture, where this shows the margin of what remains. Everyone else should just use Net Margin.

EBIT Margin

What it is: EBIT stands for earnings before interest and taxes: operating profit as a share of revenue, measured before financing costs and tax effects touch the picture. It isolates how profitable the core business is, regardless of how it is funded or where it is domiciled.

Why value investors care: It is the cleanest lens for comparing operations across companies with different debt loads and tax rates - and like all margins, it only means something within an industry. A durable EBIT margin above 15% usually points to a structural advantage; below 5%, the business lives at the mercy of its input costs. The trap is the flip side of its virtue: by excluding interest, it makes a company drowning in debt look identical to a debt-free one. The balance sheet still has to be read separately.

EBITDA Margin

What it is: EBITDA stands for earnings before interest, taxes, depreciation, and amortization - operating profit with the depreciation of past capital spending added back, here as a share of revenue. It approximates the cash the operations throw off before financing, taxes, and reinvestment.

Why value investors care: Its legitimate use is comparing businesses within an industry whose depreciation schedules or capital structures differ wildly. But Munger’s objection applies: depreciation is a real cost - the machines genuinely wear out - and for asset-heavy businesses a fat EBITDA margin can coexist with terrible economics. The wider the gap between EBITDA margin and free-cash-flow margin, the more of the “profit” is being consumed by mandatory reinvestment, and the more skeptical you should be of any pitch built on this number.

EBT to EBIT

What it is: EBT to EBIT is pretax income divided by operating profit - the DuPont decomposition leg that measures how much of the operating result survives the interest expense line. It is the same reading as Interest Burden below, under a different name.

Why value investors care: Near 1 means little interest drag - the company barely notices its debt. Well below 1 means debt service is eating operating profit before shareholders see anything, which is precisely the company that gets hurt when rates rise or earnings dip. Since this and Interest Burden are the same metric, pick one and ignore the other.

Effective Tax Rate

What it is: The effective tax rate is what the company actually pays the taxman as a share of pretax profit, as opposed to the statutory rate written in the law. The two diverge through credits, loss carryforwards, and international structuring.

Why value investors care: The US statutory rate is roughly 21%, and most mature domestic businesses land somewhere near it. A company persistently paying far less - single digits while peers pay 20%+ - has earnings that partly rest on tax arrangements, and those arrangements have a habit of not lasting: carryforwards run out, loopholes close, jurisdictions change the rules. When that happens, net income drops with no change in the underlying business. The defensive move is to re-value the earnings at a normalized rate before deciding the stock is cheap.

Interest Burden

What it is: The same DuPont decomposition leg as EBT to EBIT above: the fraction of operating profit remaining after interest expense.

Why value investors care: Near 1 means the debt is a footnote; sustained readings below 0.8 mean lenders are taking a fifth or more of operating profit before shareholders get anything, and the equity is a leveraged bet on nothing going wrong. Watch the trend - a falling interest burden against flat EBIT means the debt is winning. If you already read EBT to EBIT, this field adds nothing.

Net Income to EBT

What it is: The tax leg of the DuPont chain: the share of pretax profit that survives taxation. It is the same metric as Tax Burden below, and the mirror image of the effective tax rate.

Why value investors care: A full US taxpayer sits around 0.79 - one minus the 21% statutory rate. Readings near 1 sustained for years deserve the same skepticism as a suspiciously low effective tax rate: someone eventually collects. If you already look at Tax Burden or Effective Tax Rate, skip this one.

Operating Margin

What it is: Operating margin is operating income divided by revenue: the profit of the core business after operating costs but before interest and taxes. In practice it tracks EBIT margin closely, differing only in how non-operating items get classified.

Why value investors care: This is the cleanest recurring-profitability line on the income statement - the hardest margin to dress up with financing tricks or one-off items. Its trend is the single most useful thing on a margin chart: expanding operating margins on growing revenue is the compounding machine every value investor is hunting, while a business that only grows revenue at flat or falling operating margins is running to stand still. As always, the level only means something against sector peers - never compare a grocer to a chip designer.

Operating Return On Assets

What it is: Operating return on assets is operating income divided by total assets - ROA computed with operating profit instead of net income, which strips financing costs and tax noise out of the numerator.

Why value investors care: It answers one narrow question well: how productively do the assets generate operating profit, regardless of how they were funded? That makes it the right tool for comparing asset-heavy businesses across different capital structures, where plain ROA gets muddied by interest expense. The usual asset-based caveat applies - goodwill from past acquisitions bloats the denominator, so a fine operator with an acquisitive history can look mediocre here while the underlying operations are excellent.

Pretax Profit Margin

What it is: Pretax profit margin is profitability after interest expense but before taxes - the last stop on the income statement before jurisdictional tax effects distort comparisons.

Why value investors care: Its niche is cross-border comparison: two identical businesses in Ireland and Germany show the same pretax margin and very different net margins, and this line reveals that they are in fact the same business. It also catches the interest expense that EBIT-based margins deliberately hide. Beyond those two uses it duplicates what operating margin and net margin already tell you together, so don’t build a screen on it in isolation.

Return On Tangible Assets

What it is: Return on tangible assets is net income measured against assets you could actually touch - total assets with goodwill and intangibles stripped out. Goodwill records the price paid in old acquisitions, not the machine that was bought, so removing it isolates the economics of the operations themselves.

Why value investors care: It sets a higher bar than ROA, and it is Buffett’s preferred lens for judging what a business fundamentally earns on the capital it truly requires. The diagnostic use: a serial acquirer with mediocre ROA but excellent returns on tangible assets is telling you the operations are fine and the deal-making was expensive. The limit: for software and services companies with almost no tangible assets, the ratio explodes toward infinity and stops meaning anything - it is a tool for businesses that own things.

R&D To Revenue

What it is: R&D to revenue is research and development spending as a share of sales - how much of every revenue dollar goes into building the future rather than harvesting the present.

Why value investors care: This is a context metric, not a good/bad number. Above 15% marks a research-driven business whose “expense” is really investment that GAAP refuses to capitalize - meaning current earnings are understated relative to the economics, and every earnings-based ratio needs a mental adjustment. Near zero in a technical industry marks a harvester living off yesterday’s work. The trap is assuming R&D automatically creates value: plenty of it is spent just defending a position against rivals doing the same, a treadmill rather than an investment.

ROA

What it is: ROA stands for return on assets: profit per dollar of everything the company controls, however it was financed. It is the honest sibling of ROE - piling on debt cannot inflate it, because the borrowed assets land in the denominator.

Why value investors care: Above 5% is good for non-financial businesses; above 10% is genuinely strong. The most useful read is the combination: high ROE with low ROA means the returns come from leverage, not from the business, which is exactly the profile that unravels in a downturn. One hard rule - banks are structurally different, because assets are their product; a healthy bank runs around 1% ROA, and comparing it to an industrial on this metric is a category error. Never screen across that line.

Tax Burden

What it is: Tax burden is the final DuPont decomposition leg: the share of pretax profit that survives taxation. It is the same metric as Net Income to EBT above.

Why value investors care: A typical reading sits around 0.75-0.85 depending on jurisdiction, with a full US taxpayer near 0.79. Its real use is decomposition: when ROE moves, this leg tells you whether the tax line was the cause rather than the business improving. An unusually high tax burden sustained for years is borrowed time - assume it normalizes toward statutory rates when projecting earnings forward, and value the company on the normalized number.