Algorithmic Trading -Carlisle&Gray

Tobias Carlisle, fund manager of the Acquirer’s fund ETF and Wesley Gray founder of Alpha Architect composed the book, Quantitative Value preceding the founding of their now ubiquitous ETFs. In it, they expound upon various fundamental ratios and forensic accounting formulae which they applied to their QV algorithm. They utilize basic fundamental ratios and metrics such as   ROE: Net Income/Book Value of Equity, ROA: Net income before Extraordinary items/Total items, Capital Employment Efficiency: ROIC-WACC, Capital Employment Multiple: ROIC/WACC, Adjusted ROC: EBIT(1-tax rate)/Book Value of Debt + Book Value of Equity - Cash & Cash Equivalents, Greenblatt ROC: EBIT/Property, Plant, Equipment, and Net Working Capital or Current Assets - Current Liabilities, Greenblatt Earnings Yield: EBIT/TEV,  EBIT/ROIC: NOPAT/Invested Capital where NOPAT=EBIT(1-t) and Invested Capital = Debt + Equity - Cash and Cash Equivalents, GPA: Revenue - Cost of Goods Sold/Assets, BM: Book Value/Market Price, CFOA: Sum of Eight Years FCF/Total Assets where FCF = Net Income + Depreciation + Amortization - changes in Working Capital Expenditure. Furthermore, they incorporated imperative forensic accounting formulae in their algorithm’s analysis, such as those of the  Altman Z Score, Piotroski F Score, and Beneish M score which are thoroughly elaborated upon in the prior pages What is Business Risk?, What is Financial Risk?, and What is Earnings visibility? respectively to ascertain the probability of bankruptcy, gauge the state of a company’s financials, and detect earnings manipulation or financial statement misrepresentation which signifies fraud. Investor and adjunct Professor at Columbia Business School Joel Greenblatt and a professor at the University of Rochester in New York’s Simon Business School whose works, (i.e Greenblatt’s The Little Book that Beats the Market, and Novy-Mark’s The other side of value: The gross profitability premium)  were instrumental in the formulation of the QV Algorithm and were credited by Carlisle&Gray for the development of many of these fundamental ratios and metrics; (e.g. Greenblatt’s simplified ROC and Earnings Yield or Magic Formula, and Novy-Mark’s GPA and BM or gross profitability premium) The following quantitative checklist proposed by Carlisle and Gray and adhered to by their QV algorithm consists of extensive criteria that can be measured by the preceding metrics contrived by Greenblatt and Novy-Mark in addition to the F, Z, and M score: https://docs.google.com/document/d/1tSTqK8zrYNGsAj59DI30mn9uny4vQVwGaSlELqAEsxM/edit