The Quantitative Value screener selects the highest quality companies out of the cheapest company in the universe.

But how do we assess Quality?

To do so, we have created a proprietary Quality Rank.

Our Quality rank is a composite score of many fundamental and technical parameters. One is the FS_Score, which is a modified Piotrosky score which was enhanced by Carlisle and Gray and described in detail in their book Quantitative Value: A Practitioner’s Guide to Automating Intelligent Investment and Eliminating Behavioral Errors. It is a score of a scale of 0 to 10. The higher, the better.

Here are its components:

FS_ROA = ‘1’ if the ROA is positive for past year, ‘0’ if otherwise

FS_FCFTA = ‘1’ if the Free Cash Flow divided by total assets for the past year is positive, ‘0’ if otherwise

FS_ACCRUAL = ‘1’ if the Free Cash Flow minus Net Earnings in the past year is positive, ‘0’ if otherwise

FS_LEVER = ‘1’ if Debt/Assets ratio has decreased during the past year, ‘0’ if otherwise

FS_LIQUID = ‘1’ if the current ratio has improved in the past year, ‘0’ if otherwise

FS_NEQISS = ‘1’ if the equity repurchases exceeded equity issuance in the past year, ‘0’ if otherwise

F_dROA = ‘1’ if the ROA in the last year is greater than in the past year, ‘0’ if otherwise

F_dFCFTA = ‘1’ if the Free Cash Flow divided by Total Asset has increased in the past year, ‘0’ if otherwise

FS_dMargin = ‘1’ if the Gross Margin rate increased during the past year, ‘0’ if otherwise

FS_dTURN = ‘1’ if Asset Turnover has increased during the past year, ‘0’ if otherwise.

The other components of the Quality Rank are the 5Y averages of Return on Assets, Return on Capital, Accruals, Gross Margin, and Gross Margin growth, as well as several technical parameters which will remain undisclosed.

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