I looked into STA a while ago. Richard Sloan’s paper is called “Do Stock Prices Fully Reflect Information in Accruals and Cash Flows about Future Earnings?”.
The paper describes the following formula:
STA = ((deltaCA - deltaCash) - (deltaCL - deltaSTD - deltaTP) - Dep) / TotalAssets
where
deltaCA = change in current assets = Compustat #4 = Current Assets Total = ACT = AstCur
deltaCash = change in cash/cash equivalents = Compustat #1 = Cash and Short-Term Investments = CHE = CashEquiv
deltaCL = change in current liabilities = Compustat #5 = Current Liabilities Total = LCT = LiabCur
deltaSTD = change in debt included in current liabilities = Compustat #34 = Debt in Current Liabilities - Total = DLC = DbtST
deltaTP = change in income taxes payable = Compustat #71 = Income Taxes Payable = TXP = TxPayable
Dep = depreciation and amortization expense = Compustat #14 = Depreciation and Amortization = DP = DepAmortIS
TotalAssets = Compustat #6 = AT = AstTot
(The above list includes the compustat item numbers mentioned in the paper, the compustat name from the mapping table at http://www.crsp.chicagobooth.edu/documentation/product/ccm/cross/annual_data.html, and the P123 name from the mapping in the Line Item Reference. All items are annual.)
Putting this together in a P123 formula gives:
$STA = (((AstCur(0,TTM)-AstCur(1,TTM)) - (CashEquiv(0,TTM)-CashEquiv(1,TTM))) - ((LiabCur(0,TTM)-LiabCur(1,TTM)) - (DbtST(0,TTM)-DbtST(1,TTM)) - (TxPayable(0,TTM)- TxPayable(1,TTM))) - (DepAmortIS(0,TTM)-DepAmortIS(1,TTM))) / AstTot(0,TTM)
Lower STA is better.
Backtesting performance
From the paper: “The study, therefore, employs financial statement data for the 30 years beginning in 1962 and ending in 1991. Finally, the financial statement data required to compute operating accruals are not available for all firms. In particular, these data are not available on Compustat for banks, life insurance or property and casualty companies.”
From Quantitative Value: “[…] shows what happens when an academic takes an idea to Wallstreet - the effect vanishes or dimishes. […] after 1996 there is a decidedly worse run [for the long/short STA strategy]”.
From my quick and dirty ranking system performance test 2008 - 2013: it doesn’t seem to work. For microcaps, the top bucket (of 20) with lowest STA loses money while all other buckets make money. For other caps, all buckets perform about the same, there is no slope or extreme top or bottom bucket. About half of the stocks have NA values.
Simpler version
Since around 1990, companies need to report additional data that allows a simpler formula according to Quantitative Value: STA = Net Income minus Cashflow from operations / Total assets. I’m not 100% sure which “Net income” variation is meant here, since I don’t have the compustat item numbers or names. In a P123 formula:
$STA_simple = (NetIncCFStmt(0,TTM) - OperCashFl(0,TTM)) / AstTot(0,TTM)
Quantitative Value does not backtest this formula and uses the more complicated version.
In a ranking system with $STAsimple as the only factor and using “lower is better”, the top bucket (of 20) has a -50% return! With 200 buckets, the top 10 buckets all lose a lot of money, some buckets over 75%. (When I change the ranking system to higher is better, I don’t get such extreme returns in the lower bucket, no idea why).
So it seems like a good idea to avoid the 5% with the lowest $STA_simple like the plague.
Btw, it’s not too hard to do a similar exercise for PROBM and SNOA. Quantative Value mentions that SNOA also works a lot worse nowadays, similar to Sloan’s STA.