At a Glance: Credit Suisse HOLT Core Metrics

Basics

Content Category: Fundamentals/Company Reported Data

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Corporate financial statements can be misleading; companies typically employ highly subjective accounting methods which distort the true profitability of the firm and make traditional accounting ratios suspect.

HOLT’s proprietary methodology corrects subjectivity by converting income statement and balance sheet information into the company’s internal rate of return (CFROI), a measure that more closely approximates a company's underlying economics. The resulting returns are objectively based and can be viewed to assess the firm's historical ability to create or destroy wealth over time. Users can then future compare HOLT's warranted valuation to the expectations of the market to gauge whether the stock is overvalued or undervalued.

HOLT’s comprehensive global data covers publicly traded companies in developed and emerging markets.

Data Overview

Asset Class: Public Companies

Data Frequency: Weekly/Monthly

Delivery Frequency: Weekly/Monthly

History: Data available back to the 1970s

Data Methodology

Typically, when companies undertake a specific project such as an acquisition or an expansion into a new business line, they prepare an economic profile that factors in the forecast amounts and timing of all cash outflows and inflows over the estimated project life. An internal rate of return can then be calculated, which is simply compared to the firm’s hurdle rate to decide whether to proceed with the project.

HOLT expands on this premise, applying it not merely to a specific project, but to an entire company. Like the IRR calculation of a project, the CFROI metric is a proxy for the company’s economic return.

This provides a consistent, holistic approach that can be used to compare operating performance across a portfolio, a market, or a global universe of companies.

Use Cases

Fundamental Analysis

• Access a comparison of companies based on operational profitability and valuation metrics that are cash-focused and adjusted to remove accounting distortions to provide comparability across regions, sectors, time, and accounting standards.

Portfolio Management

• Compare a portfolio to a benchmark or competing product using operational profitability and valuation metrics that are cash-focused and adjusted to remove accounting distortions to highlight differences in quality, momentum, or valuation aspects of the portfolio. 

Alpha Generation

• Leverage pro-forma monthly historical data with metrics related to operational profitability, momentum, and valuation that can be tested for inclusion as a source of alpha into various types of quantitative strategies.

The details provided above are as of January 2021.

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