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What does Montier C-Score mean?

James Montier aimed to create a simple scoring system that would highlight companies that may be 'cooking the books'. The C-Score was the result.

An analogue to the Piotroski, it measures six inputs in a binary fashion to create a score between zero and six. Inputs include: the divergence between net income and cash-flow, increasing days sales outstanding, increasing days sales of inventory, increasing current assets to revenues, declining depreciation relative to PPE and high total asset growth.

Stockopedia explains Montier C-Score...

Montier found that companies with high C-Scores under performed the market by 8% per annum, generating a mere 1.8% return between 1993 and 2007.

He recommended using it in tandem with a high valuation measure. A C Score = 5 used in tandem with a Price/Sales Ratio > 2 generated a negative absolute return of 4% p.a. in the US.

For a full review of the C Score please click here.

What does P/S mean?

A price-to-sales ratio, or a stock's market price per share divided by the revenue generated by sales of the company's products and services per share. Some argue that, since sales figures are less easy to manipulate than either earnings or book value, the price-to-sales ratio is a more reliable indicator of how the company is doing. However, this measure was misused during the dot com years to promote companies with no earnings or profits.

Stockopedia explains P/S...

Some argue that, since sales figures are less easy to manipulate than either earnings or book value, the price-to-sales ratio is a more reliable indicator of company value.

When EPS are negative or depressed temporarily the Price to Sales ratio can be a more useful indicator than the PE Ratio, and a low P/S can indicate a higher profit potential if the stock recovers. Some commentators have called it 'The King of the Value Factors' and look for P/S ratios of significantly less than 1.

It should be noted that the P/S ratio was abused during the dot com years to promote companies with no earnings or profits.