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The Magic Formula’ Joel Greenblatt Investing Strategy

The Magic Formula’ Joel Greenblatt Investing Strategy

Submitted by • October 21, 2020 blog.finology.in

The formula depends on two principle measures, the stock price and the organization's cost of capital. It necessitates that you put resources into those organizations that own either an exceptional return on capital or ROC or high earning yield (a stock's earlier year's earnings per share divided by the current share price). The earning yield is the factor that shows whether the stock is selling at a decent price or not.

ROC is the ratio of pretax operating earnings (EBIT) to tangible capital employed (net working capital + net fixed capital). It is calculated;

ROC = EBIT / (net working capital + net fixed capital).

Enterprise value = Market value of all equity + net interest- debt.

Earning yield = EBIT/EV

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