Price & Market BehaviorExtended setexperimental liveNew

Fundamental Inflection Gp Accruals

Updated quarterlyData needs: mediumlong onlylong short

2013

Novy-Marx 2013 JFE -- The Other Side of Value: The Gross Profitability Premium; Sloan 1996 AR -- Do Stock Prices Fully Reflect Information in Accruals?

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In plain terms

Companies where gross profit is rising while accruals are falling signal improving earnings quality that the market is slow to price.

How it works

Gross profitability improvement combined with declining accruals (Sloan 1996 accrual anomaly) identifies companies whose cash earnings quality is inflecting up. Both signals have independent explanatory power; the intersection is a high-confidence quality-improvement screen.

Live results

0 times picked on its own · 8 times inside a blend (6 beat the stock) · updated 2026-07-06

This strategy is a frequent ingredient in blends that combine a few strategies on one stock. It has contributed to 8 such blended picks (6 of which beat simply holding the stock). Picking it on its own is only one of the ways it shows up.

How its picks scored vs. buy & hold

Each pick is graded on a recent year it was never tuned on, against simply owning the same stock

Where its edge concentrates

Share of picks in each company-size group that beat buy & hold

How often it trades

Active vs. patient. Bars on the left mean it waits for rare setups; bars on the right mean it trades often

Return vs. buy & hold

How much each pick beat or trailed simply owning the stock over the test year (extreme microcap moves trimmed)

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Data dependencies

Daily prices
Adjusted-close OHLCV for every US-listed ticker; primary price feed.
Fundamentals
Quarterly fundamentals (income, balance, cash-flow) from FMP + SEC.

Expected edge

Reported return: ~3% ann. (GP leg); ~5-10% (accrual short leg)
Tested over: 1963-2010 (Novy-Marx); 1962-1991 (Sloan)

GP + falling accruals intersection delivers ~3-5% annual alpha in the long leg.

Related families

Gross ProfitabilityPrice & Market Behavior

Companies with high gross profit / total assets keep beating peers — it's the cleanest measure of 'is this business actually good'.

Cash ProfitabilityPrice & Market Behavior

Cash operating profit (backs out accrual fudges) over book equity is a sharper quality predictor than gross profit. Long the cash-rich.

Fundamental Inflection DupontPrice & Market Behavior

Companies where ROE improvement is driven by margin gains (not leverage) outperform peers over the next year.

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