THE FINAL QUANTITATIVE VALUE CHECKLIST
Step 1: Avoid Stocks at Risk of Sustaining a Permanent Loss of Capital
- Identify Potential Frauds and Manipulators
1.1 Accrual Screens
STA = Scaled Total Accruals = (CA (t) − CL (t) − DEP (t)) / Total Assets (t)
- CA = change in current assets − change in cash and equivalents
- CL = change in current liabilities − change in LT debt included in current liabilities − change in income taxes payable
- DEP = depreciation and amortization expense
- P_STA = percentile (STA) among all firms in the universe
- SNOA = (operating assets (t) − operating liabilities (t)) / total assets (t)
- P_SNOA = percentile (SNOA) among all firms in the universe
- COMBOACCRUAL = average (P_STA, P_SNOA)
1.2 Fraud and Manipulation Screen
Calculate variables:
- DSRI = days' sales in receivables index
- GMI = gross margin index
- AQI = asset quality index
- SGI = sales growth index
- DEPI = depreciation index
- SGAI = sales, general and administrative expenses index