By buying companies with high F score and shorting companies with low F score, the portfolio returned at least 20% more than the benchmark over the same period.
So, we can actually use these factors in order to look at whether a company is qualitatively sound, as a form of first level screen.
Component
|
Rank
|
Net income
|
Score 1 if last year net income is positive
|
Operating Cash Flow
|
Score 1 if last year cash flow is positive
|
Return on Assets (ROA)
|
Score 1 if last year ROA exceeds prior-year
ROA
|
Quality of Earnings
|
Score 1 if last year operating cash flow exceeds net income
|
Long-term debt versus assets
|
Score 1 if ratio of long-term debt to assets
is down from the year-ago value
If LTD is zero but assets are increasing,
score 1 anyway
|
Current Ratio
|
Score 1 if CR has increased from the prior year
|
Shares Outstanding
|
Score 1 if the number of shares outstanding
is no greater than the year-ago figure
|
Gross Margin
|
Score 1 if full-year GM exceeds the prior-year GM
|
Asset Turnover
|
Score 1 if percentage increase in sales
exceeds the percentage increase in total assets
|
Some scores take reference on a preceding year basis. We can enhance the score by checking for consistent trends over a specific time period too.
EmoticonEmoticon