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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 AgrmtAnalyst Agreement
BetaBeta
Book ValBook Value
Cash FlowCash Flow
Col AlphaColumbine Alpha (Price Momentum)
Divd YldDividend Yield
Earn ChgEarnings Change
Earn GrowEarnings Growth
Earn SupEarnings Surprise
Earn VolEarnings Volatility
Est E/PEstimated Earnings Yield
Est RevEstimate Revision
Ind MomIndustry Momentum
Mkt LiqMarket Liquidity
Oper FundsOperating Funds Momentum
Rev ConfRevision Confidence
Rev MagRevision Magnitude
ROEReturn On Equity
Rpt E/PReported Earnings Yield

RETURN FACTORS

Book Value

The company's book value-to-price ratio

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

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Cash Flow

The company's cash flow-to-price ratio

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

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Columbine Alpha (price momentum)

Columbine's proprietary, risk-corrected measure of each stock's 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.

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Dividend Yield

The ratio of a company's dividends paid during the past year to its current price

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

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Earnings Change

A measure of the dynamics of a company's quarterly earnings

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.

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Earnings Growth

The ratio of the growth in a company's earnings to its stock price

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

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Earnings Surprise

A comparison of a company's reported earnings to the latest First Call consensus estimate

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.

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Estimated Earnings Yield

An earnings yield based on the First Call consensus EPS estimate

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

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Estimate Revision

A multifaceted measure of revisions to sell-side analysts' estimates of each company's FY1 earnings

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.

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Industry Momentum

A proprietary measure of each industry group’s price 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.

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Operating Funds Momentum

A measure of the growth in a company's operating funds (Used in international models only)

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

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Reported Earnings Yield

The classic "value" measure based on reported EPS figures

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

Return On Equity

The rate of return on the ownership interest of the common stock holders

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.

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RISK FACTORS

Beta

The standard measure of a stock's market risk

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

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Market Liquidity

A measure of how difficult it may be to trade a given stock

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

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Earnings Volatility

A measure of the fluctuations in a company's quarterly earnings

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

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