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Zerodha Quality Checklist

Zerodha Quality Checklist is a Other Screens screen. It checks every NSE-listed stock against 4 conditions computed from nightly data, after excluding heavily pledged promoters and very small market caps. This page explains the rule, each figure and its source. It lists no stocks and is not advice.

What it does and why

Zerodha Varsity — India's most-used retail investing education platform with millions of readers — distilled a simple quality baseline for retail stock selection: avoid micro-caps (market cap > ₹100 Cr floor), require sustained high returns on equity (ROE > 18% consistently for 5 years, not just the latest year), and verify that reported profits are backed by actual operating cash flows (CFO > 0). The 5-year ROE consistency requirement is the most important differentiator: a company that achieved 20% ROE last year might be a one-year wonder. Achieving it for 5 consecutive years while maintaining positive cash flows is the mark of a structurally sound business, not a temporarily profitable one.

The rule, step by step

A stock must satisfy every condition below. Conditions are grouped under the pillar they test.

Quality Consistency

  • ROE > 15
  • PAT Margin > 10
  • Revenue CAGR (3Y) > 10

Cash Flow Quality

Described in the philosophy; not a pass/fail condition in the current rule

General conditions

  • Debt/Equity < 1

Hard excludes

  • Promoter pledge above 30% of the promoter's holding
  • Market cap below ₹500 crore
Passes the screen

Ranked by ROE, highest first.

The figures it uses

ROE

Used in a condition
Formula
Latest annual PAT ÷ total equity × 100, only when equity is positive
Input fields
pat, total equity
Source of record
FinEdge · /api/v1/financials/{symbol}?statement_code=pl&period=annualFinEdge · /api/v1/financials/{symbol}?statement_code=bs&period=annual
Refresh
Recomputed nightly (06:30 IST job); rows older than 3 days are excluded from screens

Debt/Equity

Used in a condition
Formula
Total debt ÷ total equity from the latest annual balance sheet; a company reporting zero debt has a ratio of 0; none is given when the debt figure is unknown or equity is not positive
Input fields
total debt, total equity
Source of record
FinEdge · /api/v1/financials/{symbol}?statement_code=bs&period=annual
Refresh
Recomputed nightly (06:30 IST job); rows older than 3 days are excluded from screens

PAT Margin

Used in a condition
Formula
Latest annual PAT ÷ revenue × 100
Input fields
pat, revenue
Source of record
FinEdge · /api/v1/financials/{symbol}?statement_code=pl&period=annual
Refresh
Recomputed nightly (06:30 IST job); rows older than 3 days are excluded from screens

Revenue CAGR (3Y)

Used in a condition
Formula
Revenue ((Latest ÷ value 3 years earlier)^(1/3) − 1) × 100, both values positive
Input fields
revenue
Source of record
FinEdge · /api/v1/financials/{symbol}?statement_code=pl&period=annual
Refresh
Recomputed nightly (06:30 IST job); rows older than 3 days are excluded from screens

Promoter Pledge

Hard exclude input
Formula
Pledged shares as a share of the promoter's own holding: pledgedSharesPct ÷ promoter holding × 100; blank when the quarter is not listed
Input fields
pledgedSharesPct, promoter holding
Source of record
FinEdge · /api/v1/shareholdings/summary/{symbol}?period=quarterlyFinEdge · /api/v1/shareholdings/pattern/{symbol}?period=quarterly
Refresh
Recomputed nightly (06:30 IST job); rows older than 3 days are excluded from screens

Market Cap

Hard exclude input
Formula
Close × paid-up equity shares ÷ 10,000,000 (₹ crore)
Input fields
close, paidUpEquityShares
Source of record
Upstox · public historical candles, NSE_EQ|{ISIN} (no auth)FinEdge · /api/v1/daily-quotes/{symbol} (fallback)FinEdge · /api/v1/shareholdings/summary/{symbol}?period=quarterly
Corporate actions
Adjusted for corporate actions before use
Refresh
Recomputed nightly (06:30 IST job); rows older than 3 days are excluded from screens

What each figure means

Market Capitalisation (₹ Cr)

Total market capitalisation of the company in crores of rupees. Used as a minimum size filter.

Zerodha's minimum is ₹100 Cr — a basic liquidity floor that excludes most micro-caps. At ₹100 Cr, there is typically sufficient daily trading volume for a retail investor to enter and exit without moving the price.

High is better

Years with ROE > 18% (out of 5)

The number of the past 5 fiscal years in which the company achieved ROE above 18%. Must be 5 out of 5 to qualify.

High is better

Operating Cash Flow (₹ Cr)

Cash generated from the company's core operating activities after working capital adjustments. Must be positive to qualify.

Positive CFO ensures that the high ROE is not the result of aggressive accounting. A business can report good earnings by stretching receivables or deferring payables — but it cannot fake actual cash in the bank.

High is better

Try the rule

Type hypothetical values to see which conditions they satisfy. These are not real stocks and nothing here is stored.

  • ROE > 15—
  • Debt/Equity < 1—
  • PAT Margin > 10—
  • Revenue CAGR (3Y) > 10—

Enter values to begin

How sensitive is it?

How many stocks pass if this threshold were set differently. Counts only; no stocks are named.

A worked example

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Evidence

What the harness measured

no_verified_figureNot yet tested

We have not measured this screen yet, so there is no record to explain.

Live monitoring

  • 5-day IC -0.013 · signal date 2026-10-14 · n 4447
  • 22-day IC 0.000 · signal date 2026-09-12 · n 3840

This is a historical, statistical measurement produced by FINOME TECHNOLOGIES PVT LTD's research harness on past data. It is not a prediction, and past results do not indicate future results. The universe is today's Nifty 500 constituents, so the sample is affected by survivorship bias. It describes how a screen's selections behaved in the past and does not constitute investment advice or a recommendation.

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Rule version 1.0.0

Questions

How is this screen calculated?
Each stock is tested against 4 conditions using figures computed from exchange prices and company filings, adjusted for corporate actions. The rule is versioned; this page shows version 1.0.0.
How often does the screen update?
The figures are recomputed once each trading day after the nightly compute. A stock whose figures are more than three days old is left out rather than shown stale.
Is this investment advice?
No. This is educational material describing a screening method. It does not recommend any security and does not consider your circumstances.
Educational use only — GoQuant is a research tool. This page explains a screening method and is not a recommendation. Investment advice is provided by FINOME TECHNOLOGIES PVT LTD (AltQube), SEBI-registered Investment Adviser, registration no. INA000018373, under a signed advisory agreement and after a risk profile. Past performance is not indicative of future results.