Pascal edited introduction.tex  almost 8 years ago

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\section{Introduction}  In a prior working paper, Pierre and al. have demonstrated how to build a stock selection framework based on the profitability of a firm and its stock price valuation. This Profitability-Valuation framework is derived from the Residual Income Model (hereafter \textit{RIM}) which is in fact a derivation of the Dividend Discount Model (hereafter \textit{DDM}). In this context, Pierre and al. show that profitability is necessarely measured using Return On Equity (hereafter \textit{ROE}) while the valuation metric is necessarely the Price To Book (hereafter \textit{PB}). As such, screening for stocks using ROE and PB Drawbacks of the dividend or earnings approach to valuation are well known, and practitioners in the equity investment community tend to prefer cash-flow based valuation metrics.  $V_{t}=\displaystyle\sum_{i=1}^{K}\frac{C_{t+i}}{(1+R)^i}+V_{t+K}$