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Quality Rating Ford's Quality Rating, introduced in 1970, is based upon overall financial strength and earnings predictability. It can be used as a tool to reduce risk. The general factors analyzed are: company size, debt profile, earnings history/stability and market/industry stability. Ford's Quality Rating ranges from A+ to C- (B is considered average). Growth Persistence Rating The growth persistence rating is a measure consistency of earnings growth over the past 10 years and return on equity. Companies are assigned ratings of A, B, C or D (C is considered average). Earnings Variability Ford’s Earnings Variability is a unique measure of risk that describes the historical volatility of reported earnings per share. Earnings variability is computed by finding the minimum standard error of annual earnings over the past eight years fitted to an exponential curve. Earnings variability, which is shown as a percentage of normal earnings, is a very useful indicator that can be used to evaluate future earnings and growth estimates. Operating Earnings Ford Equity Research analysts regularly study quarterly and annual reports, SEC filings, and press releases to determine true operating earnings. This process takes us one step further into the reported net income of a company, and provides the input for the earnings trend analysis. Ford’s quarterly earnings series consists of quarterly operating earnings, as reported by the company, for the past seven quarters. Ford’s operating earnings excludes unusual revenue and expense items which are commonly included as part of reported net income. For example, restructuring charges, asset write-downs and realized investment gains can have a significant impact on earnings. In most cases, however, these events do not reflect the ongoing business of a company and may even mask operating results. By excluding such activities, Ford’s earnings trend calculation measures the underlying momentum of true operating performance. Normal Earnings Normal Earnings forms the backbone for Ford’s intrinsic value analysis. They represent sustainable earnings of a company – a base to which Ford’s projected earnings growth rate is applied to determine long term value. Normal 12-month earnings per share will differ from reported earnings when the latter have been affected by nonrecurring or cyclical factors. Share Buyback/Issuance Ford Equity Research’s Share Buyback/Issuance model was introduced in October 1995. Favorable results from corporations repurchasing their own shares may be the result of various factors: higher return-on-investment internally, excess cash flow, and smaller share base that improves earnings per share.
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