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.
