Stock Fundamentals Archive

Return on Equity Backtest

Updated March 1, 2014 with 2014 data. Originally posted June 11, 2014. The Return on Equity (ROE)  is a commonly used profitability metric. ROE measures a company’s efficiency at generating profits from every unit of shareholders’ equity. It is often used in conjunction with a DuPont analysis, which breaks down ROE into three components. Those components are profit

Return on Investment Backtest

Return on Investment (ROI) is a fundamental measure of profitability and efficiency based on how much net income is generated by a company’s total debt and equity.  Return on Investment is calculated as follows: Return on Investment = Income After Taxes / (Total Long Term Debt + Stockholders Equity) This fundamental is defined in Portfolio123, the bactesting tool I’m using, as the trailing

Gross Profits to Assets Ratio Backtest

The Gross Profits to Assets ratio is another profitability measure. This fundamental was recently mentioned by Ken Faulkenberry in the comments section of my Return on Assets Backtest article. Ken was interested in seeing a backtest of this fundamental. Apparently, the gross profits to total assets ratio is starting to gain popularity among value investors. It was

Return on Assets Backtest

Return on Assets (ROA) is a fundamental measure of profitability based on how much net income is generated by a company’s assets.  Return on Assets is calculated as follows: Return on Assets = Net Income / Average Total Assets Return on Assets recently came up in a discussion regarding the Piotroski F-Score Backtest.  Return on assets

Piotroski Score Backtest Part 2

I received some feedback on my last post regarding the Piotroski F-Score backtest. The comment suggested that I run the backtest for each of the ten discrete Piotroski Scores. I have been using quintiles for my fundamental backtests, but I did agree that in the case of the Piotroski Score it might make more sense to

Piotroski F-Score Backtest

The Piotroski F-Score is an advanced compound fundamental analysis strategy developed by Joseph D. Piotroski. Piotroski detailed this strategy in his 2002 academic paper, “Value Investing: The Use of Historical Financial Statement Information to Separate Winners from Losers.”  The F-Score gives stocks one point for passing each of the following simple accounting-based fundamental tests: Positive net income

Earnings Per Share 5 Year Growth Rate Backtest

Growth investing is often considered the opposite of value investing. However, growth fundamentals influence how a company is valued. Today, I’m going to test how the long-term earning per share 5 year growth rate impacts stock returns. The EPS 5-year growth rate I’m using for this backtest is the compound annual growth rate of earnings per share

Price to Sales Ratio Backtest

The Price-to-Sales (P/S) ratio is a commonly mentioned valuation ratio. It is similar to the P/E ratio but uses revenues instead of earnings. The advantages of using sales in this valuation ratio are two fold. First, it somewhat controls for earnings manipulation, since it is harder to manipulate sales numbers. Second, because the Price/Sales ratio does not

Price to Free Cash Flow Ratio Backtest

The Price-to-Free Cash Flow (P/FCF) ratio a popular valuation ratio among value investors. It is similar to the P/E ratio but free cash flow is just operating cash flow minus capital expenditures.  Because it relies on the Statement of Cash Flows, it is thought to be less susceptible to accounting manipulation. Free cash flow is also similar to Warren

PEG Ratio Backtest

The Price-to-Earning to Growth ratio, commonly referred to as the PEG ratio, is a simplistic valuation rule of thumb. A value less than one potentially indicates an undervalued stock and a ratio greater than 1 might indicate overvalued stock. This simplistic and somewhat controversial ratio was popular in the ’90s but has more recently grown out of favor . The