Overall quality factor
factor.formula
Price/Book Value =
Based on the Gordon growth model, the ratio of stock price to book value can be decomposed into dividend per share/book value and divided by the difference between the expected return required by investors and the company's growth rate. This formula is the theoretical basis for understanding the construction of quality factors.
Price/Book Value =
The dividend per share/book value in the numerator can be further decomposed into earnings per share/book value multiplied by dividend per share/earnings per share to more clearly reflect the impact of a company's profitability and dividend policy.
Price/Book Value =
The formula is further simplified, with profitability representing earnings per share/book value, and payout ratio representing dividend per share/earnings per share. The formula shows that the value of a company depends on profitability and dividend willingness, and is affected by the expected rate of return and growth rate.
In the formula, the meaning of each parameter is as follows:
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Market price of stocks
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Book value per share
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Dividend per share/book value, measuring the company's dividend ability
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The expected rate of return required by investors reflects the market's pricing of corporate risk.
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The company's expected future growth rate
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Earnings per share/book value, i.e. profitability
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Dividend per share/earnings per share, i.e. dividend rate
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The profitability of a company can be measured by various profit indicators
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Company dividend rate
factor.explanation
The comprehensive quality factor usually shows good risk resistance when the market is down or volatility increases, especially in a bear market, which can help investors control the downside risk of the investment portfolio. This factor focuses on selecting high-quality companies with high profitability, stable growth, sound finances and good dividend willingness. Therefore, this factor has a high allocation value in risk-averse investment strategies and can be used as an important part of building a defensive investment portfolio.