The key benefit of using The Applied Finance Group's (AFG’s) Economic Margin Framework is that it provides a systematic approach to converting as-reported accounting data into a performance metric that is comparable across time, peers, industries and even countries while eliminating many of the accounting distortions inherent in GAAP. The ability to understand the true economic profitability and the underlying intrinsic value of a company using one consistent method is why AFG expanded its framework internationally. Now investors all over the globe can take advantage of the same institutional quality research and investment tools that AFG’s U.S. clients have been using since 1996 to better understand the expectations embedded in security prices and take advantage of mispriced securities in the market.
AFG uses proven proprietary criteria to identify firms that are more likely to outperform the benchmarks, and filter out those that are least attractive. These criteria include variables such as management quality score, earnings quality, firm valuation and economic performance metrics. AFG has proven through time in identifying winners and losers in the market through its buy and sell lists which continue to have a significant spread in performance between the buys and sells.
Using AFG’s powerful quantitative criteria to screen the Nikkei 225 (the most widely quoted average of Japanese equities within the Tokyo Stock Exchange (TSE) we have identified in the chart below the 10 most undervalued stocks in the Nikkei 225 index. All these firms contain characteristics of companies that are likely to outperform and rank highly in AFG’s measures of corporate performance and valuation attractiveness.
AFG's Valuation Metric – Measures the percent to target (deviation between a stock’s current trading price and its AFG current default target price). To derive the intrinsic value of a firm, AFG uses its proprietary Valuation Model (modified discounted cash flow model).
Economic Margin - A corporate performance measurement that addresses the gaps in GAAP, eliminating distortions caused by accounting policies to measure what a company is truly earning above or below their cost of capital.
Management Quality – Assesses management’s ability to make wealth creating decisions.