Operating Earnings Yield (OEY) Using price to earnings ratio to value stocks has proven to be one of the most successful stock selection tools. By inverting the ratio to look at earnings to price, also termed earnings yield, users can evaluate companies with either positive or negative earnings. In April, 1997 Ford tested the performance of earnings yields based on various earnings per share measures including normal, current, Ford’s adjusted operating, and estimated earnings for the current fiscal year and the next fiscal year. The best performance came from the operating earnings for the last 3 quarters and the current quarter estimate. Operating Earnings Yield is like dividend yield in that a higher value is considered better and a lower figure indicates an overvalued stock. Negative earnings companies have negative Operating Earnings Yields. Ford Operating Earnings Yield Model (OEY) Decile Excess Returns & Std. Dev. (%) vs. Ford Universe 12/09 to 12/14 15.0 Excess Return & Std. Dev. (%) 10.0 Universe Annualized Return = 16.2% 5.0 Universe Annualized Standard Deviation = 16.7% 0.0 ‐5.0 ‐10.0 ‐15.0 Excess Return Excess Risk Decile 1 7.3 1.3 Decile 2 4.8 -0.6 Decile 3 2.9 -1.7 Decile 4 2.4 -2.1 Decile 5 1.3 -1.9 Decile 6 -1.8 -1.3 Decile 7 0.3 -0.8 Decile 8 -1.6 0.4 Decile 9 -6.5 3.6 Decile 10 -11.1 13.0 Top Decile/Group Ford Stock Selection Models 12/09 to 12/14 30 Value/Momentum 26 OEY Excess Return Top Decile vs. Ford Universe (%) 8.8 3.8 13.3 6.4 5.2 Price Momentum 22 Annual Return 2010 2011 2012 2013 2014 Operating Earnings Yield Sales Momentum Share Buyback Earnings Momentum 18 Relative Earnings Trend Earnings Variability Earnings Trend Ford Universe Quality Rating 14 Price/Value 10 10 12 14 16 18 20 22 24 26 28 Annual Standard Deviation Performance is based on ranking the Ford Universe from best to worst for the model shown and dividing it into 10 equal-sized groups each month. The group returns represent equal–dollar investments in each stock each month, with monthly total returns linked to create annual and annualized results. Total returns, which sum month-end percentage price changes and 1/12 of companies’ indicated annual dividend yield, exclude transaction costs and management fees. The Ford Universe had 4164 companies at the end of 2014. Quantitative model results can be affected by market environment and are based on historical financial data. Certain material information for a company may not be reflected in models presented. The performance shown is based on large portfolios and may not be effective on every security. There is no assurance that future results will duplicate past results. OEY Decile Performance on Capitalization Sectors Average Annual Returns (%) 12/09-12/14 Deciles Large Cap Standard Deviation 1 13.8 18.6 2 15.5 16.5 3 15.7 14.9 4 19.0 14.8 5 17.5 13.3 6 16.7 13.8 7 14.6 14.2 8 12.7 15.3 9 13.8 15.3 10 Cap Univ. 14.9 15.5 18.3 15.0 Mid Cap Standard Deviation 18.1 20.6 21.3 19.3 20.3 17.7 16.7 17.0 19.6 16.4 14.1 16.1 15.1 16.8 17.1 17.4 14.7 18.3 14.9 23.8 17.3 17.8 Small Cap Standard Deviation 23.7 21.1 20.0 19.2 18.4 17.4 20.6 18.0 13.7 17.5 18.3 19.0 14.9 20.5 11.9 19.4 11.1 23.8 4.0 29.8 15.8 19.8 Large, Mid and Small Cap constituents include the top 1000, second 1000, and third 1000 companies in the Ford universe of stocks when ranked by market capitalization. OEY Top Decile Annual Excess Return by Industry Group 12/09 - 12/14 13.0 10.0 7.0 4.0 1.0 -2.0 -5.0 Correlation Coefficients 12/09 - 12/14 Ford Proprietary Models PVA OEY EMO PRM VMO SHB QTY SMO SED SDR EDV Price/Value (PVA) 1.000 0.872 0.850 0.892 0.791 0.774 0.592 0.815 0.939 0.905 0.685 Operating Earnings Yield (OEY) 0.872 1.000 0.937 0.945 0.963 0.929 0.825 0.945 0.877 0.913 0.907 Earnings Mom entum (EMO) 0.850 0.937 1.000 0.947 0.954 0.949 0.809 0.972 0.935 0.967 0.920 Price Mom entum (PRM) 0.892 0.945 0.947 1.000 0.942 0.897 0.744 0.948 0.928 0.936 0.865 Value/ Mom entum (VMO) 0.791 0.963 0.954 0.942 1.000 0.960 0.861 0.971 0.850 0.910 0.954 Share Buyback (SHB) 0.774 0.929 0.949 0.897 0.960 1.000 0.872 0.954 0.851 0.916 0.965 Quality Rating (QTY) 0.592 0.825 0.809 0.744 0.861 0.872 1.000 0.827 0.665 0.758 0.896 Sales Mom entun (SMO) 0.815 0.945 0.972 0.948 0.971 0.954 0.827 1.000 0.899 0.943 0.944 Earnings Trend (SED) 0.939 0.877 0.935 0.928 0.850 0.851 0.665 0.899 1.000 0.971 0.785 Relative Earnings Trend (SDR) 0.905 0.913 0.967 0.936 0.910 0.916 0.758 0.943 0.971 1.000 0.868 Earnings Variability (EDV) 0.685 0.907 0.920 0.865 0.954 0.965 0.896 0.944 0.785 0.868 1.000