Profitability Grade

The profitability grade for all qualified companies in Morningstar's stock universe is based on valuation of return on shareholders' equity (ROE) over the past five years.

Morningstar's universe of stocks is first filtered for adequacy of historical ROE figures. Companies with less than four years of consecutive ROE figures, including the ROE figure for the latest fiscal year, are tossed from calculations and are assigned “--“ for the profitability grade. For the remaining qualified universe of stocks, the profitability grade is based on the valuation of the following three components, which are assigned different weights: the historical growth rate of ROE, the average level of historical ROE, and the level of ROE in the latest fiscal year of the company. Stocks are assigned A, B, C, D, or F. Morningstar calculates this figure in-house on a monthly basis.

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