Factor Definitions

We utilize a number of individual return and risk factors in creating the Columbine Models. Each multifactor model has a different "recipe" of these factors, and not every factor is used in every model. Columbine's criteria for selecting these particular factors are two-fold: First, each factor has to make economic sense; simply exhibiting a correlation with future return is not sufficient without a sensible rationale. Second, each factor has to demonstrate significant predictive power on its own. In the case of the three risk factors, that predictive power is more related to the volatility of future return.

**Ranking convention:** Deciles (**1** to **10**). For return factors a ranking of **1** (top 10%) indicates most likely to outperform and **10** (bottom 10%) indicates most likely to underperform. For risk factors a **1** ranking indicates the lowest risk, while **10** is the highest risk. Factor rankings
for US stocks are benchmarked to the *Columbine 1500 Universe*.
Columbine factor rankings for non-US firms are benchmarked to the stocks of the *Dow Jones Index* for
the particular company's home country market.

Here are our factor name abbreviations as used in Columbine *Research Book* reports. Click on the factor name to go to that factor's definition.

Abbreviation | Factor Name |

Anly Agrmt | Analyst Agreement |

Beta | Beta |

Book Val | Book Value |

Cash Flow | Cash Flow |

Col Alpha | Columbine Alpha (Price Momentum) |

Divd Yld | Dividend Yield |

Earn Chg | Earnings Change |

Earn Grow | Earnings Growth |

Earn Sup | Earnings Surprise |

Earn Vol | Earnings Volatility |

Est E/P | Estimated Earnings Yield |

Est Rev | Estimate Revision |

Ind Mom | Industry Momentum |

Mkt Liq | Market Liquidity |

Oper Funds | Operating Funds Momentum |

Rev Conf | Revision Confidence |

Rev Mag | Revision Magnitude |

ROE | Return On Equity |

Rpt E/P | Reported Earnings Yield |

RETURN FACTORS

Book Value

Defined as: current book value per share divided by the current stock price

Cash Flow

Defined as: trailing four-quarter EPS, minus trailing twelve-month dividends, plus depreciation, divided by the current stock price

Columbine Alpha (price momentum)

Based on a unique, volatility- and risk-adjusted quantitative model, the **Columbine Alpha Factor** forecasts each issue's probable performance over the next six to twelve months.

Defined as: the alpha estimate resulting from a generalized least squares regression of weekly (Friday-to-Friday) stock price changes for the past twelve months against weekly changes in the *S & P 500 Composite Index* for the same period. We apply proprietary weighting structures to the stock price change and market change data before the regression is run.

Dividend Yield

*Defined as*: trailing twelve-month dividends, divided by the current stock price

Earnings Change

Defined as: the weighted sum of the last twelve reported quarterly EPS values, divided by current stock price, combined with the variance of the quarterly EPS value.

Earnings Growth

Defined as: current trailing four-quarter EPS, minus trailing four-quarter EPS two years ago, divided by current stock price

Earnings Surprise

Defined as: actual reported EPS for the fiscal quarter just completed, minus the latest median EPS estimate for the same fiscal quarter, divided by one plus the latest median EPS estimate for the quarter

Stocks ranked **1** have had the largest positive earnings surprises; those ranked **10** have had the largest negative surprises (disappointments). If the reported and estimate figures are the same, the stock is ranked a neutral **5**. If the company's last earnings announcement is more than thirty days old, the stock is ranked a neutral **6** and the factor is ignored in computing rankings from our multifactor models.

Estimated Earnings Yield

Defined as: the median EPS estimate for the next four quarters, divided by the current stock price

Estimate Revision

Estimate Revision components analyze revisions over the past sixty days, with double weight given to changes in the last thirty days. If a company is more than six months into its fiscal year a blend of FY1 and FY2 data is used. All estimate data is from First Call. The factor ranking is a synthesis of three individual components:

Analyst Agreement - Are the estimates changing in concert?

Defined as: the number of positive revisions minus the number of negative revisions, divided by the total number of estimates.

Revision Confidence - Are the extreme estimates changing?

Defined as: the change in the highest estimate plus the change in the lowest estimate, divided by the current stock price.

Revision Magnitude - How big is the typical revision?

Defined as: the change in the median estimate divided by the current mean estimate.

Industry Momentum

Defined as: a time series analysis of each group’s weekly price changes over the past 48 weeks. The weighting structure differs from that of the Columbine Alpha Factor, and there are no beta or volatility adjustments.

Operating Funds Momentum

Defined as: the change in funds from operations (cash flow) over the past year

Reported Earnings Yield

Defined as: current trailing four-quarter EPS divided by the current stock price

Return On Equity

Defined as: the current trailing four-quarter EPS combined with current cash flow (four-quarter EPS minus dividends, plus depreciation), divided by the current book value per share.

RISK FACTORS

Beta

Defined as: the beta estimate from regressing five years of weekly stock price changes against the weekly changes in the *S & P 500 Composite Index* for the same five years

Market Liquidity

Defined as: the current stock price times the average daily trading volume over the previous full month

Earnings Volatility

Defined as: the standard deviation of the past twelve quarterly EPS values, normalized by current EPS