METHODOLOGY
How the Score Works
Every stock in our universe is scored from 0 to 100 using 8 fundamental metrics. Each metric is individually normalized and weighted. The result is one clear number that reflects the overall fundamental health of a small-cap company.
DATA SOURCES
All scores are calculated from publicly available financial data. We source from SEC EDGAR filings, Financial Modeling Prep, and Yahoo Finance. Scores are recalculated monthly, typically within 48 hours of new quarterly earnings data becoming available.
THE 8 METRICS
Revenue Growth YoY
Year-over-year revenue growth rate. Measures how fast a company is expanding its top line. Higher growth signals stronger market demand and execution.
What we measure: Trailing 12-month revenue compared to the prior 12 months.
Why it matters: Small-caps live or die by growth. A company growing revenue at 30%+ is capturing market share. Stagnant revenue in a small-cap is a red flag.
Gross Margin
Revenue minus cost of goods sold, as a percentage. Reflects pricing power and unit economics.
What we measure: Gross profit divided by total revenue, trailing 12 months.
Why it matters: High margins mean the business model works. A 70% gross margin SaaS company has very different economics than a 20% margin hardware company.
Cash Runway
How many months the company can operate at its current burn rate before running out of cash.
What we measure: Cash and equivalents divided by monthly net cash burn.
Why it matters: The #1 killer of small-caps is running out of money. 18+ months of runway means the company has time to execute. Under 6 months is danger zone.
Debt-to-Equity Ratio
Total debt relative to shareholder equity. Lower is generally better for small-caps.
What we measure: Total debt divided by total shareholder equity.
Why it matters: Overleveraged small-caps are fragile. A debt-to-equity under 0.5 gives the company flexibility. Above 1.5 means debt is a real risk.
Price-to-Sales Ratio
Market capitalization divided by trailing 12-month revenue. A valuation sanity check.
What we measure: Current market cap divided by TTM revenue.
Why it matters: A P/S of 3x means the market values every dollar of revenue at $3. Under 5x is reasonable for growth; above 20x needs exceptional justification.
Rule of 40
Revenue growth rate plus operating margin. A benchmark for balancing growth with profitability.
What we measure: Revenue growth YoY (%) + operating margin (%).
Why it matters: A company growing at 50% with -10% margin scores 40 — passing the test. It captures the growth-vs-profit tradeoff in one number.
Insider Ownership
Percentage of outstanding shares held by company insiders (executives, directors, founders).
What we measure: Insider-held shares divided by total shares outstanding.
Why it matters: When insiders own 10%+ of the company, their incentives are aligned with yours. Low insider ownership can mean management is just collecting a salary.
Share Dilution (12M)
How much shares outstanding have increased over the past 12 months. Dilution erodes your ownership.
What we measure: Percent change in shares outstanding over the trailing 12 months.
Why it matters: If a company grew shares by 15% in a year, your stake just got 15% smaller. Under 5% dilution is acceptable; above 10% is a warning sign.
GRADING SCALE
IMPORTANT NOTES
The exact weighting formula, normalization curves, and threshold values are proprietary. We show you the ingredients, not the recipe. This protects the integrity of the scoring system while giving you full transparency about what factors drive each score.
Scores are fundamentals-only. We do not factor in price momentum, technical indicators, sentiment, or news. The score answers one question: how healthy is this company based on its financial data?
This is a research tool, not financial advice. Always do your own due diligence.
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