Quantitative Value Wesley Gray. Points and Takeaways 1.Net Net Current Asset Value (Current assets – current liabilities) – All long term liabilities.

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Presentation transcript:

Quantitative Value Wesley Gray

Points and Takeaways 1.Net Net Current Asset Value (Current assets – current liabilities) – All long term liabilities 2.“Quantitative Value” rooted in Thorp, Buffet, and later, Greenblatt 3.Magic Formula Quality: EBIT / Capital; Capital = Net PPE + NWC (Excludes cash and interest bearing assets) Price: EBIT / TEV 4.Economic Profitability: Novy Marx Gross Profit / Total Assets 5.Academic Measures: Farma / French Book Value / Market Cap

Model Framework 1.Identify Fraud / Manipulators Accruals 2.Identify high risk of financial distress 3.Find cheapest stocks EBIT / TEV 4.Find quality stocks A.Franchise power 8 Year: ROA (NI / TA), ROC (EBIT / Capital), FCFTA, Margin Growth, Margin Stability (Avg growth / Std. Deviation) B.Financial strength (Improvement to Piotroski F-Score) Profitability ROA, FCFTA, Accrual (all > 1) Stability Declining leverage, liquidity improvement (current ratio), no increase in net equity issuance Operational Improvements ROA, FCFTA, improving margins, asset turnover improvement