- Normalized return on assets.
- Normalized return on assets based on cash flow.
- Cash flow minus net income. (i.e. negative of accrual.)
- Normalized earnings variability.
- Normalized sale growth variability.
- Normalized R&D expenses.
- Normalized capital spending.
- Normalized advertising expenses.
Interestingly, Prof. Mohanram pointed out that most of the out-performance of the high-score stocks occur around earnings announcements. Hence for those investors who don't like holding a long-short portfolio for a full year, they can just trade during earnings season.
One caveat of this research is that it was based on 1979-99 data (at least for the preprint version that I read). As many traders have found out, strategies that work spectacularly in the 90's don't necessarily work in the last few years. At the very least, the returns are usually greatly diminished. In the future, I hope to perform my own research to see whether this strategy is still holding up with the latest data.