Lesson 4 of 6
The cycle reading for this one
Track B applied once, to one company, in one paragraph. Four questions, the figures that answer each, and the sentence the paragraph may never contain.
By Javier Sanz
Founder of ValueScreener. Built Ninety Nine, a securities services provider, and sold it to a tier-one global bank; ran operations and internationalization at Alpaca, the brokerage API.
Who writes thisEditorial processLinkedIn (opens in a new tab)X (opens in a new tab)
In one minute
- Four questions, each with a figure that answers it, and the whole reading fits in one paragraph.
- The paragraph is past tense and contains no view about credit conditions, no date and no price.
- If it will not fit in a paragraph, the reading has not finished.
Five courses of bridge material, applied once. This is the shortest lesson in the capstone and it is the one that decides whether any of the bridge was worth reading.
Four questions, and the figure that answers each
- 1Where is the cost of creditInterest expense, interest paid, and interest capitalised into an asset
- 2What is datedThe five-year maturity schedule and the commitments note
- 3What is the cushionCash, operating cash flow to debt, net debt to earnings
- 4What does a bad year costFixed asset turnover, operating leverage, and the fixed share of the cost base
Question one: where is the cost of credit
Three places, and a company may use one. The income statement line, the cash interest paid in the cash flow statement, and the amount capitalised into a long lived asset.
If the first is zero, the third is usually why, and the second is the evidence the obligation exists. That single check takes five minutes and it determines whether a coverage ratio means anything at this company.
Question two: what is dated
The five-year maturity schedule, and the commitments note beside it. Look for concentration rather than size: a year carrying far more than the years around it, and whether it is close.
Then compare it to the company's own cash and cash generation, and to nothing else. Another company's schedule says nothing about this one.
Question three: what is the cushion
Three measures, and compute all three because the disagreement is the finding. Net debt to earnings, operating cash flow to debt, and debt to equity.
If some of them are refused, that is the answer to a different question and it is usually the more useful answer, which the two ratios that do not exist lesson established.
Question four: what does a bad year cost
Fixed asset turnover, to size the capital intensity. Operating leverage, read beside the two underlying movements rather than alone. And the share of the cost base that did not fall the last time revenue did.
If the filed record contains no bad year, the honest output is to say so and to name where the capital actually sits instead.
The sentence the paragraph may never contain
Any sentence about what happens next. The boundary lesson gave the test: strip the implication and see whether a measurement remains.
Run it on your own paragraph before it goes into the document. If a clause disappears without changing anything, delete it, because it was doing no work and it was the clause a future reader would have remembered.
Check yourself
What are the four questions?
- Valuation, leverage, growth and quality
- Where the cost of credit is, what is dated, what the cushion is, and what a bad year costs
- Revenue, margin, cash flow and returns
Show the answer
Answer: B.
Each has a figure that answers it, and the whole reading fits in one paragraph. If it will not fit, it has not finished.A company's filed record contains no bad year. What is the honest output of question four?
- Estimate one from the industry
- Say so, and name where the company's capital actually sits instead
- Use the worst quarter as a proxy
Show the answer
Answer: B.
An exercise that produces a hole and names it has worked. A confident answer where the evidence is absent has not.How do you test the paragraph before it goes into the document?
- Check every figure against its filing
- Strip each implication and see whether a measurement remains; delete any clause that disappears without changing anything
- Compare it against a peer company's paragraph
Show the answer
Answer: B.
Checking the figures is also necessary. The strip test catches the clause that was doing no work, which is the one a future reader would have remembered.Sources
- Micron Technology, Inc., annual reports on Form 10-K for the fiscal years ended 28 August 2025, accession 0000723125-25-000028, filed 3 October 2025, and 31 August 2023, accession 0000723125-23-000054, filed 6 October 2023, and 1 September 2022, accession 0000723125-22-000048, for every figure in the worked paragraph.
What this leaves out
- This is a heterodox tradition. The mainstream account of the same phenomenon differs, and nothing here is a forecast or a view on any security.
- The paragraph describes filed fiscal years at one company. It is not a description of that company today and it says nothing about any future year.
- Four questions is the shortest set that covers what the bridge teaches. A reader with industry knowledge will have a fifth, and it belongs in the paragraph.
- Nothing here is a view on Micron or on any security.