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Sabrient Launches Earnings Quality Rank for US Stocks
Rankings analyze 3,000 US-listed equities to detect potential accounting-related risks
Santa Barbara, Calif. – Dec. 10, 2012 – Sabrient Systems, LLC, an independent equity research firm that specializes in alpha extraction through quantitative and qualitative analysis, and Gradient Analytics, a global equities research firm and wholly owned subsidiary of Sabrient Systems, LLC, announced today the release of Earnings Quality Rank (EQR), a new quantitative tool for the asset management industry. EQR offers clients an objective and unbiased assessment of a company’s relative potential risk due to accrual accounting practices as reflected in key relationships among information contained in the firm’s income statement, balance sheet, and cash flow statement.
Following the 2008 stock market crash, investment managers have placed a heavy emphasis on earnings quality and accounting-related risk management. With EQR, a collaboration of Sabrient and Gradient’s research, clients can leverage a model-based ranking to detect potential accounting-related risks. EQR covers approximately 3,000 US-listed stocks each with a market capitalization greater than $150 million and a share price greater than $2.
“In addition to our regular coverage of non-financial companies exhibiting unusual earnings quality-related risks, our analysts played a vital role during and after the 2008 economic crisis in assisting clients when assessing the earnings quality of financial institutions,” said Nick Gibbons, Senior Analyst and Associate Director of Research at Gradient Analytics. “Investment managers want a standard to evaluate earnings quality-related risks, and EQR serves as the latest quantitative tool in addressing this need.”
“We are excited about leveraging both Sabrient and Gradient’s expertise in one comprehensive product for our clients,” said David Brown, CEO, Founder, and Chief Market Strategist of Sabrient. “The combined core knowledge from our respective disciplines has enabled the firm to develop an exclusive ranking methodology that can detect early warnings of accounting irregularities that can negatively impact corporate earnings.”
To develop the EQR model, Gradient’s research team selected the most salient accounting factors associated with a firm’s future returns. The Gradient variables were then quantified and backtested by Sabrient’s research team to find those with the highest correlation among financial statements and negative events. The final variables were sized and scaled and, as a result, the most correlated ones became the foundation for EQR.
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ABOUT SABRIENT SYSTEMS, LLC
Sabrient Systems, LLC specializes in unbiased, fundamentals-based quantitative equity research for the benefit of investment professionals, hedge funds, and self-directed investors. The firm analyzes nearly 5,000 U.S. and 500 Canadian traded stocks and identifies those that appear poised to out-perform or under-perform the market. Sabrient first published rankings in 2002, and its models have consistently outperformed relevant benchmarks over a broad range of investing styles, market caps, time frames and market conditions. Sabrient is based in Santa Barbara, California. Visit www.sabrient.com.
ABOUT GRADIENT ANALYTICS
Founded in 1996, Gradient Analytics provides qualitative research for identifying long and short ideas and reducing stock-specific risk. Gradient's rigorous research methods are based on academic and proprietary studies in the areas of quality of earnings and corporate executive behavior. As part of Sabrient, Gradient Analytics includes:
- Earnings Quality Analytics (U.S.)—comprehensive forensic-accounting, financial-statement, and corporate-governance analysis of widely held public companies.
- Equity Incentive Analytics (U.S.)—actionable investment ideas based on the relationship between future earnings/stock-price performance and abnormal executive stock dispositions and stock-option behavior, as well as the relationship between performance and equity-incentive plan design
- Gradient International (non-U.S.)—in-depth research of forensic-accounting issues, foreign-exchange effects, domiciled market reporting and disclosure anomalies, valuation in light of sustainable earnings and balance-sheet robustness, corporate governance and executive behavior.