Founded in 1995, by Rafael Resendes and Daniel Obrycki, The Applied Finance Group (AFG) is an equity research and consulting firm that corrects accounting distortions and analyzes how the market sets prices to help its clients make better investment decisions. Today AFG works with over 250 of the largest institutional investment firms from around the world, including wealth management firms, management consulting firms, hedge funds, bank trust departments, investment counselors, mutual fund managers, and corporations looking for better market strategies.
AFG developed its proprietary framework, Economic Margin™ (EM), to evaluate corporate performance from an economic cash flow perspective and is an alternative to accounting-based valuation metrics. EM measures the return a company earns above or below its cost of capital and provides a more complete view of a company’s underlying economic vitality
The core of AFG’s framework is the conviction that insightful valuations require understanding how well a firm has utilized its invested capital. Currently, common measures of corporate performance are based on earnings, such as earnings growth, price to earnings and ROE. Consequently, firms will often undertake actions that increase earnings (and taxes), but do not create value, in the hope of inducing stock analysts upgrades. Such a misplaced importance on the role of earnings is tragic, as earnings are only a part of the shareholder wealth creation process.
- AFG’s EM Framework is an empirically verified approach to consistently explain market valuations in real-time portfolios. By understanding differences between a stock’s intrinsic value and market price, management effectiveness, and earnings quality, the firm’s recommendations outperform the market regardless of a company’s sector, size, or growth/value orientation. AFG’s research covers approximately 30,000 companies in 70 different countries.
- AFG has developed a complete set of products and services to augment the capabilities of investment professionals and harnesses the unique insights of our Economic Margin framework to help make smarter and more informed investment decisions.
COMPANY PHILOSOPHY AND CULTURE
Research and development are critical parts of AFG’s culture, with 70 percent of its employees dedicated to improving products and research. Its focus on new research and investment tools is designed to help investment managers make better investment decision, leverage their resources and enhance the investment research processes.
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