In a paper published in January 2002, Joseph Piotroski explored whether a simple accounting-based fundamental analysis strategy can give better returns to an investor. He came up with a way to score balance-sheets based on financial strength – the higher the score, the better were the prospective returns. Scientifically curious readers can take a look at Value Investing: The Use of Historical Financial Statement Information to Separate Winners from Losers (pdf)
We created a Theme based on this score. Basically, balance-sheets are scored based on current profitability, stability and operational improvements for two years (using 3 years of data.) The rationale is that stocks that score high on these criteria should out-perform over a period of time.
You can take a look at the this theme here: Financial Strength Value
Similar themes: Magic Formula Investing, Quality to Price, Balance-sheet Strength.
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