Quality Factors

This factor was introduced by Richard Tortoriello, a senior quantitative analyst for S&P Capital IQ. He authored a book on quantitative analysis: Quantitative Strategies for Achieving Alpha (2009, McGraw Hill). In this book, he identified the External Financing Ratio as a factor that is very good at predicting investment underperformance.

Formula:

$External finance ratio = ( Total Assets - Total Assets y-1 - Cash Flow from Operations ) Total Assets$