Input | How It's Calculated |
|---|---|
Return on Capital (ROC) | Operating Profit divided by Tangible Capital |
Tangible Capital | Net Working Capital (NWC) + Net Fixed Assets (NFA) |
Net Working Capital | (Current Assets - Cash/Equivalents) less (Current Liabilities - Short-term Debt) |
Net Fixed Assets | Long-Term Assets less goodwill and intangibles |
Earnings Yield (EY) | Operating Profit divided by Enterprise Value |
Enterprise Value | Market Cap + Total Debt - Cash and Equivalents |
Market Cap | Shares Outstanding * Stock Price |
To calculate the magic formula, rank firms by descending ROC and then again by descending EY. Then add the two rankings together and resort the combined rankings lowest to highest. The lowest combined rankings are the most attractive per the Magic Formula.


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