Source: Combines the profitability metric from Novy-Marx (2013) with the accruals measure from Sloan (1996)
Companies scoring high on the profitability metric Novy-Marx called "the other side of value" (gross profit / total assets) while still trading below 1x PBR. Accruals of 0 or below are also required, so that reported profit is backed by operating cash flow rather than inflated by accounting estimates. The design demands "cheap" and "good" simultaneously, measured on separate yardsticks.
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Data comes from annual securities reports disclosed on EDINET (Japan FSA), via EDINET DB. Price-related values are as of each company's fiscal year-end (back-calculated from the disclosed trailing PER), not live quotes. Coverage: all TSE-listed companies, with names added progressively.
Gross profit / total assets. A profitability metric dubbed "the other side of value" — it correlates weakly with PBR-style cheapness metrics, making it a good complement. 0.33+, close to the original paper's top-tier threshold, is used here as a reference value (not rigorously re-validated on Japanese data). (Source: Novy-Marx (2013), Journal of Financial Economics)
Market cap divided by net assets. At 1.0x the share price equals the book liquidation value; below 1.0x, the arithmetic says breaking the company up and distributing its assets would yield more than its market cap. Book value is measured at historical cost, though, and captures neither unrealized gains on land nor intangibles like brand — so trading below 1.0x does not automatically mean cheap (in structurally declining industries it is the norm). It is also the central metric in the Tokyo Stock Exchange's 2023 reform request. (Source: Standard financial ratio (central metric of the Tokyo Stock Exchange's 2023 request on "management conscious of cost of capital and stock price"))
(Net income - operating cash flow) / total assets. A higher value means earnings are less backed by actual operating cash flow (possibly inflated by accounting estimates); a lower value is considered higher earnings quality. Useful for flagging cheap-looking stocks whose numbers look "too clean." (Source: Sloan (1996) "Do Stock Prices Fully Reflect Information in Accruals and Cash Flows about Future Earnings?" The Accounting Review)