External Finance

The External Finance Ratio is calculated as (Gross change in total assets for the year - net cash generated from operations) / Total assets at the end of the year.

If the ratio is positive (>0) it means that the company was not able to finance its assets growth from cash generated by its business. And if the ratio is negative (<0) it means that the company was able to generate enough cash to finance its assets growth.

This idea for this ratio came from the excellent book by Richard Tortoriello called Quantitative Strategies for Achieving Alpha: The Standard and Poor's Approach to Testing Your Investment Choices

 

How to use the ratio

Available as a screening ratio: Yes

Available as an output column ratio: Yes (Look for it under the Quality heading)

 

How to select the quality companies

To find quality companies with the lowest External Finance ratio set the slider from 0% to 10%.

 

Remember

All ratios are calculated on a trailing 12 months (TTM) basis.

This means the last twelve months (not the company’s financial year) is compared to the same period in the past. We do this to make sure that the screener data includes the latest, most up to date, financial results of the company.

 

Click here to start using the External Finance Ratio in your portfolio NOW!

 

More information

Read more about the External Finance Ratio (EFR) here: Use this simple quality ratio to improve your investment returns