Hypothesis fund_from_operations abhas - kitzz03/WorldQuant-Alphas GitHub Wiki

Alpha

a = (ts_rank(fnd6_fopo/debt_lt,252));

group=bucket(rank(cap),range="0.1,1,0.1");

b = 1+ts_rank(operating_income-operating_expense,63);

a*(group_rank(b,exchange))

Hypothesis

Companies that generate high income from operations compared to their debt, may do well in the future.

If the funds from operations increases with time it indicates company is doing well and lowering of the long term debt further strengthens this belief.

Datasets used:

fnd6_fopo : Funds from operations

dbt_lt: Long Term Total Debt

operating_income: Quaterly operating income after depreciation

operating_expense: Quaterly operating expense

Initial Alpha

ts_rank(fnd6_fopo/debt_lt,252)

ts_rank is taken for a year to account for the companies performance within a year.

low turnover because of using fundamental data which is generated quaterly

Improved Alpha

Since we are considering well performing companies wrt their operations, a company with increasing profits can further improve the signal. Also grouping companies with similar market capitalization and ranking them also helps in improving the idea. "Birds of same feather flock together" Decay is zero as turnover is already low so we dont want to further reduce our turnover and lower our returns.

Answers to questions by judges:

How do we know data is quaterly generated: We can see the turnover chart of the fundamental and it contains spikes every quarter

performing best in market neutralisation: ??

why is alpha not performing well in 2019: ?? (possible) stock market boom in 2019 following 2018 crash and , so all companies were performing well and it was not able to segregate them hence a stall, while in covid as well as in 2018 during crashes it was very easy to separate well performing companies from the other ones hence good alpha performance. https://www.cnbc.com/2019/12/31/the-stock-market-boomed-in-2019-heres-how-it-happened.html

why one parameter is ranked yearly and other is ranked quarterly: alpha looks to combine the long-term operational efficiency in handling debt with cash flow in addition to improving the signal with recent operational profitability, while also considering the relative size of companies to make more meaningful comparisons.

why cashflow not used:

reit companies:

why not short term debt used:

why recent operational profitability:

china market pnl:

proof of signed power:

ffo ka expression sahi se samjho:

Links:

https://www.investopedia.com/terms/f/funds-operations-ffo-total-debt-ratio.asp

FFO is distinct from cash flow in the sense that it does not involve all types of cash flow, but only what it generates from core operations.

The FFO represents the operating performance and takes net income, depreciation, amortization, and losses on property sales into account while factoring out any interest income and gains from property sales.

The fund from operations figure does not account for cash flows that are generated from or expended for financing activities like interest income or expense, respectively.

One of the essential reasons why FFO is explicitly used for REITs over EPS is the inclusion of depreciation and amortisation.

Operating profit is the revenue a company generates in excess of the operational costs and depreciation & amortization recorded in an accounting period.

In other words, it accounts for all the income and expenses stemming from an organization’s core business operations that are essential to keep the company functioning.

Therefore, it does not include any income or expense born out of ancillary activities like investments, loans, debts, etc. It presents a clear picture of a company’s efficiency, both administrative and managerial, in handling its core business operations.

Analysts and investors utilize a company’s operating profit to determine its profitability through operational activities.

In some cases, operating profit is also cited as Earnings before Interest and Tax (EBIT). However, EBIT includes income arising from non-operational activities as well. Thus, the terms EBIT and operating profit can only be used interchangeably if a company does not have any non-operating revenue like interest earned from investments.