APEX factor · Quality
Quality picks companies whose unit economics are durable: high gross profit per dollar of assets, conservative accounting, low leverage. The bet is simple — businesses that already make money efficiently keep doing it longer than the market expects.
Imagine two restaurants on the same street, both profitable. One spends 60% of revenue on food costs; the other spends 40%. Both grow 5% per year on paper, but one is a cash-printing machine and one is barely keeping up with rent. Quality factors look for this difference at scale — companies whose every dollar of revenue throws off more dollars of profit than peers, and whose balance sheets aren't propped up by debt or accruals. The academic finding is that the market chronically under-prices this durability.
q_raw = (revenue - COGS) / total_assets // Novy-Marx GP/A piotroski_F = Σ 9 binary tests on the income statement, balance sheet, cash flow quality = z_score( w₁·q_raw + w₂·piotroski_F + w₃·(1 − leverage) )
We z-score the composite across the 374-ticker universe so a quality value of +1 means roughly one standard deviation above the universe mean. The composite weights w₁, w₂, w₃ are not disclosed — that's part of the calibration moat — but the academic anchors and the z-score normalisation are public.
The daily 06:00 UTC cron pulls the latest 10-K / 10-Q via SEC EDGAR XBRL, computes gross-profitability and Piotroski F-score per ticker, normalises across the universe, and stores the result in apex_factor_scores. The factor enters the APEX composite at the per-ticker scoring step, where it gets a regime-conditional weight (Quality dominates in risk-off / late-cycle regimes per Asness-Frazzini-Pedersen 2014).
Quality is one of twelve factors composing the 0–100 APEX score. Its weight is regime-conditional — heavier in risk-off, lighter in risk-on momentum regimes — and its signal interacts with Value (the Novy-Marx 2013 paper explicitly pairs them) and with Accruals (Sloan 1996). When all three fire bullish on the same ticker, the QUALITY COMPOUNDER confluence pattern triggers and applies a small upward delta with academic provenance.
Quality slows down in late-cycle melt-ups when low-quality momentum stocks get bid up faster than fundamentals warrant. Two structural failure modes: (a) book-value erosion — companies aggressively buying back stock can show artificially high gross-profit / asset ratios while their economic moat shrinks; (b) one-time charges — an asset writedown in the trailing four quarters can spike q_raw without representing a real improvement in unit economics. We mitigate (a) by trailing the metric over 8 quarters where data allows, but the failure mode is honest.
Every ticker page shows the per-factor decomposition. The Quality score is one of twelve composing the 0–100 APEX composite.