# TARFA: A Novel Approach to Targeted Accounting Range Factor Analysis for Asset Allocation

## TL;DR

This paper introduces TARFA, a new valuation framework that combines traditional and modern methods to improve asset allocation and investment decisions.

## Contribution

The novel TARFA framework identifies three key accounting factors that drive superior investment returns.

## Key findings

- The TARFA framework outperformed population returns in both general and sector-specific models.
- Three key accounting factors were identified as driving superior investment returns.
- The Relative Equity Score enhances the model's ability to identify undervalued stocks.

## Abstract

The valuation of companies has long been a cornerstone of financial analysis and investment decision-making, offering critical frameworks for investors to gauge a firm’s worth and evaluate the relative value of future income streams within a specific industry or sector. In this work we propose a new valuation framework by integrating traditional and modern valuation approaches, providing actionable insights for investors and analysts seeking to optimize asset allocation and portfolio performance. We introduce a novel framework (TARFA) to comparable company valuation by identifying investor-preferred return-driving points for accounting-based factors. Through an analysis of 68 commonly used accounting measures, the study identifies three key factors that drive superior returns. The results of the TARFA framework demonstrate that both general and sector-specific models consistently outperformed population returns, with the general model showing superior performance in broader market contexts. The study also highlights the stability of key financial ratios over time and introduces the Relative Equity Score, further enhancing the model’s ability to identify undervalued equities.