Strategy #0000000071 · Fundamental quality and equity factors
Profitability and quality factor
Enter gross profit and average assets to compute GP/A and a cost-adjusted high-quality versus low-quality scenario.
Profitability signals include gross profits/assets, operating profitability/equity, ROA, ROE and asset turnover. Novy-Marx shows gross profitability on assets can complement value. Measures, industry structure, accounting classifications and costs affect results; high profitability does not guarantee higher future returns.
Gross profit, operating income and ROE differ in signal and industry exposure; returns are entered assumptions.
Three ways in
Understand the story. Then inspect the risk.
Start with a familiar situation, check the payoff, then test how the numbers change.
The idea · in two minutes
What do gross profitability on assets and assumed quality-basket returns show?
Profitability signals include gross profits/assets, operating profitability/equity, ROA, ROE and asset turnover. Novy-Marx shows gross profitability on assets can complement value. Measures, industry structure, accounting classifications and costs affect results; high profitability does not guarantee higher future returns.
Enter gross profit and average assets to compute GP/A and a cost-adjusted high-quality versus low-quality scenario.
Gross profit, operating income and ROE differ in signal and industry exposure; returns are entered assumptions.
- Signal metricEnter gross profit and average assets to compute GP/A and a cost-adjusted high-quality versus low-quality scenario.
- Assumed return spreadGross profit, operating income and ROE differ in signal and industry exposure; returns are entered assumptions.
Illustrative research examples only. They are not live signals or a recommendation.
The mechanics · payoff and exposure
GP/A=\frac{Revenue-COGS}{AverageAssets},\quad R_{quality}=R_H-R_L-C
GP is gross profit and COGS cost of goods sold; use a consistent beginning or average-asset denominator.
Greeks: the directional intuition
- 會計口徑
- Measures sensitivity to implied volatility.
- 產業差異
- Measures sensitivity to implied volatility.
- 可交易性
- Measures sensitivity to implied volatility.
GP/A=\frac{Revenue-COGS}{AverageAssets},\quad R_{quality}=R_H-R_L-C
Practical context · published observations
Profitability and quality factor: read the record with its caveats.
The chart uses the published figures or explicitly labelled study inputs below. A historical index or model replay is not the same as an investor’s realised account return.
Gross profit, operating income and ROE differ in signal and industry exposure; returns are entered assumptions. Source ↗ · Methodology ↗
Change assumptions and inspect the scenario
Inputs illustrate the strategy mechanics; they are not live quotes, forecasts or investment advice.
Variants · same family, different risk levers
Related signals differ in measurement and implementation.
Compare the underlying signal and its limitations.
| Related strategy | Relationship | What changes | New cost or risk |
|---|---|---|---|
| Core measure | Fundamental sort | Profitability signals include gross profits/assets, operating profitability/equity, ROA, ROE and asset turnover. Novy-Marx shows gross profitability on assets can complement value. Measures, industry structure, accounting classifications and costs affect results; high profitability does not guarantee higher future returns. | Gross profit, operating income and ROE differ in signal and industry exposure; returns are entered assumptions. |
| Industry-neutral sort | Within-industry ranking | Compare firms with similar operating models. | Industry classification and small samples matter. |
| Quality blend | Multi-signal combination | Combine cash flow, profitability or growth. | Adds weighting and multiple-testing risk. |
Gross profit, operating income and ROE differ in signal and industry exposure; returns are entered assumptions.
Read beyond the summary
References
Primary sources and research used to describe the strategy and its limits.