Fordis

 

Price to Value Ratio and Quality

The performance tests below (unless noted) are decile rankings (with decile 1 being the best), for the Ford universe limited to quality ratings of B- or better, with quarterly rebalancing and no transaction cost. Note that the turnover between deciles can be reduced substantially when real portfolios with reasonable buy/hold/sell criteria are used.

 

Price to Value Ratio (PVA)

Introduced in 1970, the price to value ratio states the ratio of current price to intrinsic value for each company, as determined by the Ford Dividend Discount Model. Ford establishes a quality rating (QTY), normal earnings (ENO) and ten-year projected growth rate (GRO) for each company. The future value of the company is determined by compounding the latest earnings by the growth rate for 10 years and assigning a nominal P/E ratio to the expected earnings at year 10. The future value and dividend stream are then discounted by the AAA long term corporate bond rate, modified by the quality rating, to arrive at the current intrinsic value.

PVA DECILE

1

2

3

4

5

6

7

8

9

10

Universe

20 Year (79-98)

18.6

21.2

19.9

20.3

18.2

17.4

15.6

16.2

14.4

13.9

17.7

Annual STD

20.2

16.9

15.9

15.8

15.5

15.3

15.6

16.3

17.3

17.8

16.0

10 Year (89-98)

13.9

18.1

16.4

18.3

16.1

16.2

14.4

14.0

13.1

12.2

15.4

Annual STD

21.4

16.9

14.9

13.7

13.3

12.5

12.2

12.2

13.3

13.8

13.9

5 Year (94-98)

13.9

17.5

16.6

19.4

15.9

17.4

14.5

14.0

14.5

12.3

15.7

Annual STD

22.9

17.3

14.5

13.8

13.3

12.2

12.9

12.7

13.2

14.7

14.3


Quality Rating (QTY)

Ford's Quality Rating was introduced in 1970 and is based upon overall financial strength and earnings predictability. It can be used as a tool to reduce risk. The general factors involved are: company size, debt profile, current obligations, earnings history/stability and market/industry stability. Ford's QTY rating ranges from A+ to C- (B is considered average). The following performance test sectors the complete Ford Universe by quality ratings. A+ and A, and C and C- are combined due to the small number of companies. Annual return and annual standard deviation are shown using monthly rebalancing and no transaction costs.

Quality Rating

A+,A

A-

B+

B

B-

C+

C,C-

Universe

20 Year (79-98)

17.8

17.7

18.7

18.0

16.6

12.5

9.0

16.9

Annual STD

13.0

13.2

14.7

17.0

19.3

23.1

31.2

16.8

10 Year (89-98)

18.6

16.6

16.9

15.3

14.9

12.9

7.4

14.5

Annual STD

11.7

11.8

12.6

14.3

16.0

18.1

26.8

15.1

5 Year (94-98)

21.6

19.3

18.4

15.8

14.8

11.6

8.2

14.4

Annual STD

11.7

12.0

12.6

14.2

16.2

18.3

24.8

15.4


<<<  back