THE FINAL QUANTITATIVE VALUE CHECKLIST

Step 1: Avoid Stocks at Risk of Sustaining a Permanent Loss of Capital

1. 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