FRAMEWORKS / VALUE / QUALITY-VALUE RANK
LENS 01 · VALUE
Quality-Value Rank framework, explained
IN THE TRADITION OF JOEL GREENBLATT'S PUBLISHED RANK METHODOLOGY
Quality-Value Rank orders the whole universe on two measures at once, earnings yield (how cheap the business is) and return on capital (how good it is), and combines them into a single ranking. The filing read does not second-guess the rank. Its only job is to check whether the numbers that produced the rank can be trusted.
What it looks for
The combined rank across the universe: earnings yield plus return on capital, sector exclusions applied.
Whether the numbers behind the rank hold up — stale data, accounting distortions, one-time earnings that inflate the score.
The quantitative screen ranks every eligible company on earnings yield, operating income divided by enterprise value, and on return on capital, operating income divided by the tangible capital the business needs. Sector exclusions apply, because the two measures do not fit every kind of balance sheet. The best combined ranks advance.
The AI read asks three questions: are the reported figures current and internally consistent, are the earnings recurring rather than one-time, and do the accounting choices inflate either measure? A company whose rank rests on a gain that will not repeat does not match.
Filings it reads
Every claim in a verdict cites one of these, by form, section and date. Anything they do not disclose is marked unknown rather than inferred.
| What is read | Why this framework reads it |
|---|---|
| 10-K: MD&A (Item 7) | Management’s account of what drove operating income. |
| 10-K: Financial statements and notes (Item 8), including segments | The figures behind both ranking measures. |
| Latest 10-Qs: financial statements and MD&A | Whether the latest quarters confirm the annual figures. |
What each verdict means
A verdict describes how well a company’s filings fit this framework, as of the filings read. It is never a prediction and never an action to take.
- GEMSTONE
- The filings confirm that the earnings and capital figures behind the rank are current, recurring and fairly reported.
- GEODE
- The rank holds up in part, but some figures are stale, one-time or not verifiable from the filings.
- SEDIMENT
- The rank depends on figures the filings show to be distorted, non-recurring or out of date.
When the filings cannot support any verdict, none is issued: the company is shown as Not scored.
What this framework misses
- It deliberately does not read risk factors or judge the business’s prospects. The tradition is to trust the rank and diversify.
- Ranking rewards what was earned recently. A business whose earnings are about to fall can rank well until the decline shows in the filings.
- The tradition rebalances a basket once a year. A single verdict reads one company’s numbers.
Terms used here
Other frameworks in the value lens
This framework can be forked in the Strategy Lab. The value lens page compares it with the other frameworks in its lens, and the how it works page walks through a complete read. Framework titles describe the method; practitioner names appear only as attribution — no methodology here is endorsed by or affiliated with the practitioners named.