The Leak Score checks twelve things a value investor would check by hand. It measures the quality of the business; whether the price is right is the verdict’s job.
Each signal counts in favour (its full weight), is neutral (half its weight) or counts against (nothing). The weights add up to 100. The score is the points won over the weight of the signals that could be checked, and it is only published when those carry at least 60 % of the weight. A signal we cannot check from the filings counts neither for nor against.
Weight 15 of 100. Is the price well below what the business is worth? It passes when the shares trade at least 20% under our estimate of intrinsic value, and fails when the price is less than 10% below it or above it.
That gap is your cushion. Every valuation is an estimate that can be wrong; if you pay 20% less than the estimate, the estimate can be 20% too generous and you still have not overpaid. Without the cushion, any error in the numbers comes straight out of your pocket.
Weight 10 of 100. Is the company cheap for the cash it actually brings in, compared with others in its industry? Price to free cash flow (P/FCF: what you pay for each dollar of cash left after running and maintaining the business) is ranked against its industry peers. It passes among the cheapest 30%, and fails when more than half of its peers are cheaper.
Cash is what pays dividends, buybacks and debt; profit on paper does not. Ranking the company against its own industry stops a capital-heavy business from looking expensive next to a software company: the question is whether the market is paying less for this company's cash than for its neighbours'.
Weight 12 of 100. Does the company earn more on its capital than that capital costs? It passes when the return on invested capital (ROIC: profit per dollar put into the business) beats the cost of that capital (WACC: what lenders and shareholders demand for it) by at least 2 points, and fails when it earns less than the capital costs.
This is the difference between a business that creates value as it grows and one that destroys it. If each dollar reinvested earns less than it costs, growth makes shareholders poorer however fast revenue climbs. A durable gap above the cost of capital is the clearest sign of a real competitive advantage.
Weight 6 of 100. Is the company keeping more of each dollar of sales than it used to? The operating margin (EBIT margin: profit before interest and taxes, as a share of revenue) has to be rising and above the median of its three previous fiscal years to pass; it fails when it is clearly falling (more than 0.4 points a year, about 2 points over five) and sits more than 2 points below that median. From SEC filings.
A widening margin means the company can raise prices or cut costs without losing customers; a shrinking one usually means competition is eating into it. For you, the trend says whether today's profit is a floor or a peak.
Weight 10 of 100. Does the reported profit turn into real cash? It passes when free cash flow (FCF: the cash left after running the business and maintaining its assets) exceeds net income, and fails when less than 80% of the profit shows up as cash.
Profit is an accounting opinion; cash is a fact. A company can book sales it has not collected yet or push costs into the future, and the gap shows up here first. When most of the profit never becomes cash, the earnings you are paying for are weaker than they look.
Weight 5 of 100. Has the company had to admit it overpaid for what it bought? Goodwill (the premium paid over the book value of an acquired company) gets written down when the deal disappoints. It passes when write-downs over the last five fiscal years are under 10% of today's goodwill, and fails when they exceed 20%. From SEC filings.
Every write-down is money that left shareholders' hands and never came back, and the record of them says how well management spends your capital on acquisitions. We count the charges themselves, not the change in the balance: a company that writes off $5B while buying $6B of new goodwill shows a rising balance and would look fine.
Weight 6 of 100. Has the company protected its profitability over the years? The operating margin over the last five fiscal years has to have improved by more than 2 points to pass; it fails when it has slipped by more than 2 points. From SEC filings.
Margins that hold through good and bad years say the company sells something customers keep paying for. Margins that keep shrinking say the product is turning into a commodity, and a business like that has to run faster every year just to earn the same.
Weight 10 of 100. Could the company keep paying its debts through a bad year? It passes when operating profit covers the interest bill more than 4 times over, or when net debt is less than 2 years of free cash flow. It fails when interest is covered less than twice and paying the debt off would take more than 3 years of cash.
Debt is the one thing that can turn a bad year into the last year. A company with room to spare on its interest can wait out a downturn, keep investing and buy back shares when they are cheap; one without that room ends up raising money at the worst moment, and the dilution or the bankruptcy lands on you.
Weight 8 of 100. Is your share of the company growing or being diluted? It passes when the number of shares fell by more than 2% over the last year, and fails when it grew by more than 1%.
Fewer shares means each one owns a bigger slice of the same business, without you doing anything. More shares means the opposite: profit and dividends get split among more owners, and in a small company that issues stock every year the slice you bought can shrink faster than the business grows. The count comes from the cover of its own filings, adjusted for splits.
Weight 4 of 100. How much of what the company owns is tangible, and how much is a promise? It passes when goodwill and intangibles (brands, patents, premiums paid in acquisitions) are under 20% of total assets, and fails when they are more than 40%. From the SEC balance sheet.
A factory or cash can be sold; the goodwill from an old acquisition cannot, and it can vanish with a single write-down. The more of the balance sheet is intangible, the less the book value you see is worth as a floor under the price.
Weight 8 of 100. How did the company hold up the last two times the economy broke? Its revenue, profit, cash flow and balance sheet through the 2008 recovery and COVID-19 give it a resilience score from 0 to 100; it passes at 75 or more and fails below 60.
Anyone can look good in a boom. The companies that kept earning and kept their balance sheet intact in a downturn are the ones whose customers could not leave, and that is what protects you the next time. A low score does not mean the business is bad today; it means it has already shown how hard it bends when things go wrong.
Weight 6 of 100. Is the company paying down its debt or piling more on? Debt relative to shareholders' equity over the last five fiscal years has to have fallen by more than 10% to pass; it fails when it has grown by more than 10%. From SEC filings.
The direction matters as much as the level. A company that keeps borrowing while it grows is betting that the good years last; one that pays debt down is buying itself room for the bad ones. For you it is the difference between a balance sheet that gets safer while you hold it and one that gets riskier.