The growth grade for all qualified companies in Morningstar's stock universe is based on valuation of revenue per share using data from the past five years. Morningstar's universe of stocks is first filtered for adequacy of historical revenue per share figures. Companies with less than four years of consecutive revenue per share figures including the revenue per share figure for the latest fiscal year are tossed from calculations and are assigned �--� for the growth grade. For the remaining qualified universe of stocks, the growth grade is based on the valuation of the growth rate of fully diluted revenue per share, where we calculate:
Z-score,
Rank z-score, and
Map the ranked z-score into growth grades.
For the purpose of calculating revenue per share we use the past five years' revenue figures and corresponding year-end fully diluted shares outstanding as per Morningstar internal data�if year-end fully diluted shares outstanding is not available, we would calculate this figure by dividing the company's reported net income applicable to common shareholders by the reported fully diluted earnings per share.
4Historical Revenue per Share Growth
The key for assigning a growth rate to a company is for the company to have a minimum of four (4) consecutive years of positive and non-zero revenue including the latest fiscal year. In calculating the revenue per share growth rate, the slope of the regression line will be divided by the arithmetic average of historical revenue per share figures. The result of the regression is a normalized historical increase or decrease in the rate of growth for sales per share.
Stocks are sorted based on the z-score of their revenue per share growth rate, from the most negative z-score to the most positive z-score. Stocks are then ranked based on their z-score from 1 to the total number of qualified stocks. Each stock rank is then divided by the total number of qualified stocks.
4Ranking and Mapping of Z-Scores for Growth Grades
|
Qualified Stock Universe Percentile Rank � Low to High |
Cumulative Percentile |
Grade |
|
10% |
10% |
F |
|
20% |
30% |
D |
|
40% |
70% |
C |
|
20% |
90% |
B |
|
10% |
100% |
A |
We calculate the z-scores for raw scores of growth and profitability according to the following formula:
Z = (X � u) / S
Where:
Z = Standard deviation distance from the population mean
X = Stock constituent raw scores
u = Population (qualified universe) average raw scores
S = Population (qualified universe) standard deviation of raw scores