Quantitative Investment Research (Systematic Quintile Equity Investment Strategies) : Return On Invested Capital (ROIC) as a single factor strategy

Overview

"A favorite profitability measure within Standard & Poor’s Equity Research, as well as many other financial firms, is return on invested capital. TO calculate the ROIC, the analyst first calculates net operating profit after tax (NOPAT). This consists of operating profit minus special items and cash operating taxes (see the definition for cash operating taxes below—their purpose is to approximate the tax that would be due on operating income only). Next, the analyst calculates invested capital, which is equal to the book value of common equity plus long-term debt, plus preferred stock and minority interest. ROIC is simply NOPAT divided by invested capital.

The main advantage of ROIC as a measure of profitability is that it compares income to the total investment in a firm—investments made both by owners (equity investments) and creditors (debt investments). Thus, ROIC provides a good overall picture of a company’s level of profitability."

This repository is home to files used in conducting a 5 level Quintile Research where I test out Return on Invested On Invested Capital as a profitable single factor strategy .Quintiles here is defined by splitting relevant data (first factor) eg. market value, ROIC , S&P etc. into a number of portfolios which is used as reference for our second factor.

How to Replicate the Research

1. Download and Edit the dataset paths as needed
2. Download and Edit the modules path as needed
3. Run the main python file (stated below)

.................Codes/Analysis Code.py

Alternatively, you can clone the repository and restructure as necessary. Via the command line,

> git clone [email protected]:QuizeCapital/Return.On.Invested.Capital