Expressive Wealth
Company Selection Framework
Layer 02 of 03 · EXMF · DDFS · EBE
The Quality Framework
DDFS
Durability · Discipline · Financial Strength
After EXMF identifies when conditions matter, DDFS determines which businesses deserve conviction — scoring companies on the three pillars that separate durable compounders from fragile growth stories.
“I focus on ratios that explain earnings durability, capital discipline, and balance-sheet resilience — then I price them within a macro and policy framework.”
Fundamentals-first. Valuation-aware. Macro-contextual. The goal is long-term, resilient wealth built through clarity, patience, and evidence — not speculation or momentum alone.
The Three Pillars
Pillar 01
D
Durability
Are the earnings real, repeatable, and defensible?
Primary Ratios
- FCF / Net Income — confirms earnings quality (cash > accounting)
- Operating Cash Flow Margin — efficiency + pricing power
- Gross Margin Stability (5–10yr) — competitive moat + cost control
- ROIC — capital discipline and value creation
- Revenue Growth vs EPS Growth — flags financial engineering vs real growth
Pillar 02
D
Discipline
What am I paying for the earnings — and are they sustainable?
Primary Ratios
- EV / EBITDA vs history & peers — normalizes capital structure
- Price / Free Cash Flow — cleaner than P/E for this strategy
- PEG using normalized earnings growth — growth-adjusted discipline
- Earnings Yield vs Treasury Yield — macro-aware valuation framing
- Operating Margin Sensitivity to Inflation — regime stress test
Pillar 03
FS
Financial Strength
Can this company survive policy shifts, cycles, and shocks?
Primary Ratios
- Net Debt / EBITDA — leverage relative to earnings power
- Interest Coverage Ratio — ability to service debt in any regime
- Debt / Free Cash Flow — leverage growing faster than cash generation
- Current Ratio — contextual liquidity, not absolute
- CapEx / Revenue (cycle-adjusted) — capital efficiency under stress
Evidence-Based Exit Triggers
EBE Layer
Durability Breaks
- FCF / Net Income below 80% for 2+ consecutive quarters
- ROIC falls below WACC — value destruction, not compounding
- Gross margins contract 3 consecutive quarters in stable macro
- Revenue growth decouples from EPS — financial engineering exposed
Discipline Fades
- Earnings yield falls materially below 10-yr Treasury — risk premium gone
- EV / EBITDA 2+ standard deviations above 10-yr mean while growth decelerates
- PEG ratio above 2.0 on normalized earnings growth
- Price / FCF premium no longer justified by quality or macro tailwinds
Financial Strength Fails
- Net Debt / EBITDA above 4.0x (3.0x in rate-sensitive sectors)
- Interest Coverage below 3.0x in a higher-for-longer rate environment
- Debt / FCF trending upward — leverage outpacing cash generation
- Current Ratio below 1.0 with deteriorating working capital trends
Position Scorecard — 0 to 10
Earnings Quality
FCF/NI · Margins · ROIC
Valuation Discipline
EV/EBITDA · justified premium
Balance Sheet Resilience
Leverage · Coverage · Liquidity
Macro Adaptability
Margin defense · FX · CapEx
Action Thresholds
Score ≤ 5, one category
Place on review list. Monitor next two reporting cycles.
Score ≤ 5, two categories
Build sell case or trim position by 50%.
Score ≤ 3, earnings quality
Exit immediately. Foundation is gone regardless of other scores.
Broken thesis override
Management credibility breaks, moat erodes, or regulatory risk materializes.
“I don’t sell winners; I sell companies that have lost their durability or their macro-relevance. We sell on evidence, not emotion, price targets, or calendar year-end.”