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%
Balance Sheet	>=49%	31%-40%	21%-30%	11%-20%	0%-10%
Cash Flow	<=0	0.1%-2.9%	3.0%-4.9%	5.0%-7.9%	>8.0%
Governance	>=5	4	3	2	1 or 0
PEG Valuation	<=1.76x	1.51x-1.75x	1.26x-1.50x	1.01x-1.25x	<=1.00x
Combined score:	18 or greater BUY
	17 or less NEUTRAL

Earnings	5-year estimated EPS CAGR
Balance Sheet	Total net debt/capital
Cash Flow	Free cash flow yield
Governance	Number of governance issues
PEG Valuation	Based on forward 12-month EPS, 5 year estimated EPS CAGR

Governance issues include:

Small audit firm (outside of the top six in the ranking by revenue)

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