Alpha Algorithms Based on the Ability of Repaying Current Debt and the Level of Research and Development

This paper explores two alphas to predict stock price movements based on companies' financial health and innovation capabilities. The first alpha, How-Much-You-Can-Pay-Back (HMUCPB) Alpha, utilizes the ratio of Operating Income to Short-Term Debt to assess a company's ability to repay current debts. The second alpha, R&D Alpha, examines the ratio of Research and Development Expenses to Operating Expenses alongside returns generated from R&D investments to evaluate a company's innovation performance. Findings indicate that while HMUCPB Alpha lacks precision in forecasting due to evolving financial complexities, the R&D Alpha demonstrates strong predictive power and practical relevance in today's technology-driven market. This work emphasizes the importance of incorporating R&D metrics into investment decision-making to achieve more profitable outcomes.