Methodology



Definitions of Return Prediction Calculations


    Beta:
    Predicts the amount of market risk obtained by investing in this company. BARRA Beta is a prediction of future market risk based upon company fundamentals, not simply a description of past market risk.Beta of 1.0 is average, indicating that a 5% market move would be expected to result in 5% return to this company, a Beta of 2.0 is very high, predicting a 10% return from a 5% market movement.
    1 indicates a high Beta, 4 low.


    Book to Price:
    Ratio of Current Book Value to Current Price. An indicator of value, in that a large value means that the investor buys a investment with large accounting value at relatively low price.
    1 indicates a large book to price value, 4 little.


    Cash Plow Back:
    Measures earnings that the company has reinvested over the past year. Re-invested earnings should be a source of future value that is not directly described in a dividend discount model. Cash plow back may be a measure of management's attitude toward prospects for high return investments.
    1 indicates large plow back, 4 little.


    Dividend Discount:
    We use forecast earnings and forecast growth rate to project a stream of earnings for each company. With the company's and industry's payout ratios we forecast dividends. The score is based on the implied return that equates the current price with the present value of the projected dividends, using a three-stage Dividend Discount Model. 1 indicates high expected return, 4 low.


    Earnings to Price:
    Current Earnings per share, twelve months trailing, divided by current Price


    Estimate Changes:
    As analysts change earnings estimates, prices follow. Often one or a few key analysts who are carefully focusing on a given stock provide the first change. Other analysts then follow their lead.
    1 indicates positive estimate changes, 4 negative.


    Estimate Revisions:
    An improved version of Estimate Changes Model which takes into account recent price movement. The model thus knows when the new information has been reflected in the current price.
    1 indicates positive estimate changes, 4 negative.


    Financial Leverage:

    Measure of leverage, interest-rate sensitivity, and dividend coverage.
    1 is highly levered, 4 is little.


    Foreign Income:
    Portion of earnings that are derived from overseas sources.
    1 is large foreign income, 4 is little.


    Labor Intensity:

    The importance of labor to the firm, relative to capital. The ratio of labor expenses to assets, fixed assets to equity and depreciated plant to plant cost.
    1 indicates highly labor intensive, 4 is low.


    Neglect:
    Combination of two factors relating to the attention the company receives from institutional managers: market capitalization and analyst coverage.
    1 is highly neglected, 4 is not neglected.


    Normal Earnings to Price:
    This model attempts to determine "true" earnings from a historical projection, eliminating short term fluctuations. This is a purely quantitative algorithm and does not incorporate any qualitative assessment of the company's earnings power.
    1 is a high ratio of "true" earnings to price, 4 is low.


Relative Strength:
Rankings based on price momentum over a 1-year horizon, adjusted for the market and other common factors. Relative strength capitalizes on the positive relationship between a stock's return over the last year and its return in the future.
1 indicates high relative return, 4 low.

Size:
Distinguishes very large companies from very small. Includes market capitalization as well as total assets of the underlying firm.
1 indicates a large company, 4 small.

Trading Activity:
Represents several measures of the stock's liquidity,including turnover, institutional coverage, and level of stock price.
1 is highly traded, 4 is little.