Source: Reproduces the metrics from Altman (1968) bankruptcy prediction model
The biggest trap in net-cash-style screening is picking up stocks that are cheap for a reason (i.e. dying). Layering an Altman Z-Score of 3.0+ (low bankruptcy risk) onto a low-PBR cheap-stock list mechanically filters out the financially fragile names. This screen used to also layer on the Beneish M-Score for fraud detection, but that metric is dated and flags high-quality firms as well, so it was dropped from the conditions.
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Data comes from annual securities reports disclosed on EDINET (Japan FSA). 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.
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"))
A bankruptcy prediction model (the original 1968 formula) that weights and combines working capital, retained earnings, operating income, market cap, and revenue. 3.0+ is the "safe" zone, below 1.8 is the "distress" zone. Used here to mechanically filter out the "cheap but dying" companies that net-cash-style screening tends to surface. (Source: Altman (1968))
A probability model for earnings manipulation that combines the year-over-year change in 8 variables: receivables turnover, gross margin, asset quality, sales growth, depreciation rate, SG&A ratio, leverage, and accruals. A score above -2.22 is commonly read as "manipulation suspected." The model is dated, though — it is built on 1999 US data, and applied to Japanese stocks it often flags even high-ROE, high-quality firms as "suspected." Because of that false-positive rate, and the reputational risk of labelling specific named companies as "suspected of fraud," this screener does not offer it as a filter condition and keeps it as a reference metric with an explanation only. (Source: Beneish (1999) "The Detection of Earnings Manipulation")