How EquityLens Calculates a 1–10 Risk Score

A transparent look at the five dimensions behind every EquityLens risk score — leverage, earnings quality, governance, cyclicality and liquidity — and how they combine into a single 1–10 number.

Every EquityLens report closes with a single 1–10 risk score. It's the number users cite most and, unsurprisingly, the one they ask us to explain most. This post walks through what goes into it, what deliberately doesn't, and how to read it against your own portfolio.

Why one number at all?

A risk score is a compression, and every compression loses information. We publish it anyway because most investors already carry an implicit score in their head — 'this one feels risky' — and an explicit, comparable number is strictly more useful than a vibe. The score is a starting point for a conversation, not the end of one.

The five dimensions

The score is a weighted blend of five sub-scores, each on a 1–10 scale. Lower is safer.

1. Leverage (25%) — net debt / EBITDA, interest coverage, and the shape of the maturity ladder. Off-balance-sheet items (lease liabilities, guarantees) are added back where disclosed.
2. Earnings quality (25%) — the gap between reported PAT and three-year cumulative operating cash flow, plus receivable- and inventory-days drift versus the sector median.
3. Governance (20%) — auditor changes, related-party transactions as a share of revenue, promoter pledge percentage, and the frequency of restated results.
4. Cyclicality (15%) — peak-to-trough EBITDA range over the last cycle and revenue correlation with a chosen macro driver (commodity, rate, or discretionary spend).
5. Liquidity (15%) — average daily traded value scaled to free float, and impact cost at a defined order size. A great business you cannot exit is still a risk.

What is deliberately excluded

Valuation is not in the score. A great business at a stretched multiple is a valuation problem, not a risk problem, and blending the two produces a number that means nothing. Momentum, sentiment and analyst ratings are also excluded — they are signals, not risks.

How to read the number

• 1–3: Low. Typically large-cap, low-leverage, cash-generative compounders. Boring is a feature.
• 4–6: Moderate. The middle of the Indian listed universe — most mid-caps and cyclicals live here.
• 7–8: Elevated. At least one dimension is flashing; the report will name which. Position sizing matters more than usual.
• 9–10: High. Usually driven by leverage or governance. Not a sell signal by itself, but the burden of proof shifts to the bull case.

What the score is not

It is not a probability of default, not a price target, and not a recommendation. Two stocks with the same 6 can be risky in completely different ways — one on leverage, one on cyclicality — and belong in different parts of a portfolio. The dimension breakdown in the report is where the actual decision-relevant information lives.

See it in a live report

Run any NSE ticker through EquityLens and the risk score, its five sub-scores, and the specific line items driving each one appear at the top of the report.

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