healthcheck.txt

Objective
This file outlines a structured approach to evaluate the financial health of a company using a set of key financial ratios and metrics. The model analyzes these ratios, applies context-specific logic, and derives a health score on a scale from 1 to 10. This score—known as the QuantiNeuron Health Check Score—serves as a snapshot indicator of the company's current financial viability.

Metrics and Ratios
1. Liquidity Ratios
Current Ratio = Current Assets / Current Liabilities
Interpretation: A ratio between 1.5 and 3.0 is generally considered healthy. Below 1 indicates potential liquidity issues, while above 3 could signal inefficient capital allocation.

Quick Ratio = (Current Assets - Inventory) / Current Liabilities
Interpretation: A ratio above 1 indicates that the company can cover short-term obligations without selling inventory, suggesting robust liquidity.

Logic:

If Current Ratio < 1 or Quick Ratio < 0.8, mark as “Weak Liquidity.”
If Current Ratio is between 1.5 and 3 and Quick Ratio > 1, mark as “Healthy Liquidity.”
2. Profitability Ratios
Gross Profit Margin = (Revenue - Cost of Goods Sold) / Revenue
Interpretation: Indicates core profitability before operational expenses. Higher values signal cost efficiency.

Net Profit Margin = Net Income / Revenue
Interpretation: Represents final profitability after all expenses. Higher percentages generally indicate a profitable business.

Return on Assets (ROA) = Net Income / Total Assets
Interpretation: Shows how effectively assets generate profit, with values over 5% considered healthy.

Logic:

High margins and ROA (>5%) indicate strong profitability, labeled as “Strong Profitability.”
If either margin is consistently low (<5%) over recent periods, flag as “Profitability Concern.”
3. Leverage Ratios
Debt-to-Equity Ratio = Total Debt / Total Equity
Interpretation: A ratio below 2 is typically favorable, as it indicates less reliance on debt.

Interest Coverage Ratio = Earnings Before Interest & Taxes (EBIT) / Interest Expense
Interpretation: Values above 3 suggest that the company can comfortably pay its interest expenses.

Logic:

If Debt-to-Equity < 2 and Interest Coverage > 3, label as “Low Financial Risk.”
If Debt-to-Equity > 3 or Interest Coverage < 1.5, flag as “High Financial Risk.”
4. Efficiency Ratios
Asset Turnover Ratio = Revenue / Total Assets
Interpretation: High values indicate efficient asset utilization.

Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory
Interpretation: High turnover rates indicate efficient inventory management.

Logic:

If Asset Turnover is above industry average and Inventory Turnover shows strong movement, mark as “Efficient Operations.”
Low turnover rates suggest operational inefficiencies, flagged as “Operational Concern.”
5. Growth Ratios
Revenue Growth Rate (year-over-year or quarter-over-quarter)
Interpretation: Positive, sustainable growth indicates business expansion.

Earnings Per Share (EPS) Growth = (EPS in current period - EPS in prior period) / EPS in prior period
Interpretation: Consistent positive EPS growth implies profitability and investor confidence.

Logic:

Strong growth in Revenue and EPS indicates “Positive Growth,” while negative trends raise “Growth Concerns.”
Scoring Logic: QuantiNeuron Health Check Score
To derive a QuantiNeuron Health Check Score (1-10), we assign weighted values to each category based on their contribution to financial health. This score is a weighted aggregate that emphasizes profitability and liquidity, followed by leverage, efficiency, and growth.

Step 1: Assign Ratings (1-10) for Each Metric
Based on each metric’s analysis, assign scores:

10 = Very Strong
8-9 = Strong
6-7 = Above Average
4-5 = Average
2-3 = Below Average
1 = Very Weak
Step 2: Weighted Category Score Calculation
Apply weights to each category:

Profitability: 25%
Liquidity: 20%
Leverage: 20%
Efficiency: 15%
Growth: 20%
Calculate weighted scores for each category:

Category Score
=
(
Category Rating
)
×
Weight
Category Score=(Category Rating)×Weight
Step 3: Aggregate for Final Score
Sum up the weighted scores to derive a total score out of 10.

Step 4: Determine Health Check Tier
Score 9-10: “Excellent Health” (Low risk, high profitability)
Score 7-8: “Good Health” (Generally strong but minor areas to improve)
Score 5-6: “Moderate Health” (Mixed performance; moderate risk)
Score 3-4: “Poor Health” (Significant concerns in multiple areas)
Score 1-2: “Critical Health” (Severe financial distress)
Example Walkthrough
If the model processes a company and finds:

Liquidity metrics in the healthy range,
Profitability metrics above average,
High leverage ratios,
Efficient operations,
Moderate growth,
The model might assign:

Liquidity = 7, Profitability = 9, Leverage = 4, Efficiency = 8, Growth = 6
Calculating weighted scores:

Liquidity Score = 
7
×
0.2
=
1.4
7×0.2=1.4
Profitability Score = 
9
×
0.25
=
2.25
9×0.25=2.25
Leverage Score = 
4
×
0.2
=
0.8
4×0.2=0.8
Efficiency Score = 
8
×
0.15
=
1.2
8×0.15=1.2
Growth Score = 
6
×
0.2
=
1.2
6×0.2=1.2
Total Health Check Score = 
1.4
+
2.25
+
0.8
+
1.2
+
1.2
=
6.85
1.4+2.25+0.8+1.2+1.2=6.85

Output
you will return:

A QuantiNeuron Health Check Score on a 1-10 scale.
A Health Summary, outlining strengths and weaknesses based on metrics.
A Recommendation Statement, if necessary, for areas needing attention.