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The Cash Flow Analytics™ model was developed in 2006 using proprietary financial statement data and share price returns across the 1998 - 2005 time period. The model is effective in generating abnormal returns across all size quintiles, but especially for small and mid-capitalization stocks. For small market capitalization firms (those with market caps of up to approximately $1.4 billion) we find that high score firms outperform a size-based benchmark up to 79.3% of the time with abnormal returns of up to 13.3% per year. Low score firms underperform a size benchmark 93.1% of the time with abnormal returns of up to 19.1% per annum. An examination of a zero investment strategy indicates that high score firms outperform low score firms by as much as 35.0% per year. Additional analyses show that abnormal returns are maintained even when controls are included for risk and stock-price momentum or when illiquid stocks are removed. Moreover, we find that model-based holding periods are at least three months in length and for 25% of the identified stocks, holding periods are six months or longer. Please refer to the White Paper - Scoring Model document.
Subsequent to its development, in separate studies conducted in April 2007 and January 2008, the model was retested using data for the 2000 - 2006 time frame and for calendar year 2007. In these out-of-sample tests, the model continues to generate strong abnormal returns for both small and large capitalization stocks. Please refer to the White Paper - 2006 Update and White Paper - 2007 Update documents.
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Dr. Mulford and Dr. Comiskey
I wanted to pass along my highest compliments to you gentlemen on your book Creative Cash Flow Reporting - Uncovering Sustainable Financial Performance. I have over 400 business books in my personal library, over 100 of them deal with either advanced financial analysis and financial modeling, or FASB / GAAP matters. Your book is the greatest book I have ever read in the finance arena.
It is clear, well written, and provides a breath of fresh air, as well as a radical departure from standard finance and accounting methods and thought in the area of operating cash flow, and overall "valuation". In my opinion, your book has blazed a new trail, in the field of cash flow analysis and forensic accounting and I believe you two gentlemen are playing in a league all by yourself, when it comes to deeper thinking about the conceptual framework of accounting and finance. Without question, the finest book I have ever read in the field. I have one word: WOW !!
Sincerely,
Brian
Chief Operating Officer / Chief Financial Officer
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