Ativo takes a quantitative approach to the analysis of all 35,000+ securities in the S&P domestic and international Xpressfeed databases. Fundamental to Ativo’s approach is this consistency of analytical technique of utilizing published accounting data. Thus, whether domestic or international, large cap or small, the fundamental principles are the same.
This methodology emanates from a highly disciplined “rules-based” approach to investing which removes behavioral biases from the investment process. The rules are based on sound academic financial research. This approach requires extensive analysis with feedback and modification that can only occur over an extended period of time. This permits analysis of the effect of changing markets and variations in financial reporting. Thus, Ativo does not back test for model development, but integrates the results of this financial research into its process when company data becomes available for analysis.
Ativo’s approach incorporates discounted cash flow return on investment, cost of capital, growth and life-cycle theory. At its core, the valuation framework is a cash flow model that uses current cost accounting to gain an understanding of the economic fundamentals of companies and their real returns on capital. Normalization and systematic analysis of financial data provides the investment advantage. Projected returns are then used to forecast sustainable growth rates covering multi-year horizons. A discounted cash flow analysis calculates a range of intrinsic values for companies, from which the firm establishes price targets.