I created a tool that ranks SP500 Companies by their financial fundamentals and backtested it over 10 years
Hi All,
I built a tool that ranks all S&P 500 companies using a scoring formula I developed. I backtested it over the past 10 years (to include corrections, Covid, etc) and limited it to the S&P 500 because these companies go through a screening process to get included and are generally seen as stable and top performing companies.
On a per-stock basis, the tool gives a correlation of +0.324 (6M) and +0.33 (12M), with an r² value of \~0.10. Meaning the score accounts for roughly 10% of the variation in forward returns, a decent edge. It also gives a breakdown of forward returns based on how the companies are ranked ie: Strong Fundamentals, Good Fundamentals, Poor Fundamentals, etc.
My tool scores a company based on these financial factors:
**Growth (45%)**
* **Revenue YoY**
* **Operating cash flow YoY**
* **A quarter-over-quarter growth acceleration check**
**Quality/Profitability (40%)**
* **Operating margin**
* **ROIC**
* **Margin trend**
* **The accruals ratio** \- compares reported net income to actual operating cash flow.
**Financial Health (15%, deliberately the smallest bucket)**
* Debt-to-equity, current ratio (short-term liquidity), and free cash flow trend/positivity
Additionally, I also run an AI analysis on each stock to get a technical writeup of each company and send it all the financial data and my scoring so it can make its own opinion and targets. The fundamental score itself does not include any AI whatsoever, that one is strictly calculation based on available financial data.
I tried to keep the post brief so you aren't buried in details, but if you want to know any additional information such as which API's im using, my tech stack, why I chose some of the financial factors etc. leave a comment and I'll try to answer.
Also, just a FYI - This tool is Backwards Looking. Meaning it uses past data to give a picture of future performance. Just because a company is #1 doesn't mean its next earnings are a knockout. DYOR.
**This Tool is NOT Financial Advice.**
**Tool ->** [Deep500 Analysis Rankings](https://www.deep500.com/)
Let me know what you think!
**\*EDIT\*: I will be doing a full re-analysis of all the tickers tonight 8/24 which will change the rankings due to a change of the algorithm which determines score. Check back tomorrow for the update :)**