Our micro-cap universe ratings mirror those of our small-cap core (i.e., BUY and NEUTRAL), but are based on a proprietary matrix that ranks companies according to five key metrics: 5-year estimated EPS CAGR, 5-year estimated cash flow CAGR, debt-to-cap, PEG ratios and quality of corporate governance.

Proprietary Matrix

	1	2	3	4	5
Earnings	<=0	1-5	6-10	11-15	>15
Cash Flow	<=0	1-5	6-10	11-15	>15
Balance Sheet	0.5	0.4	0.3	0.2	0.1
PEG Valuation	>=2	1.75	1.50	1.25	<=1
Governance	>=5	4	3	2	1 or 0
Combined score:	18 or greater BUY
	17 or less NEUTRAL

Earnings	5-year estimated EPS CAGR
Cash Flow	5-year estimated CF CAGR
Balance Sheet	Debt/Cap (most recent quarter)
PEG Valuation	Based on forward 12-month EPS, 5-year estimated EPS CAGR
Governance	Number of governance issues

Governance issues include:

Small audit firm

Audit and audit-related fees account for less than 75% of auditor compensation

Change of control agreements (golden parachutes)

Multi-tiered board of directors

Minority of directors are independent

Related party transactions are material

Chairman and CEO titles held by the same executive

Stock-based anti-takeover measures (poison pills, participating preferred, etc…)

Two classes of stock with different voting rights

CEO compensation > 10% of pretax profits

Active SEC investigation

Qualified financial statements