The Magic Formula Criteria
Greenblatt's magic formula is based on two key criteria: earnings yield and return on capital. The formula aims to identify companies that are both cheap and profitable, with the belief that these stocks have the highest potential for outsized returns.
Establish a minimum market capitalization (usually greater than $50 million). Exclude utility and financial stocks. Exclude foreign companies (American Depositary Receipts). Determine company's earnings yield = EBIT / enterprise value.
The market capitalization rule states that companies must maintain a minimum market cap of $15 million over a consecutive 30-day trading period.
Mega-cap companies have a market value above $200 billion. Large-cap companies have a market value between $10 billion and $200 billion. Mid-cap companies have a market value between $2 billion and $10 billion. Small-cap companies have a market value between $250 million and $2 billion.
Average daily market capitalization of the company to be more than INR 1,500 Crore for a 6 (six) -months period prior to the date on which the listing application has been made. The applicant company should have been listed for at least 3 years.
It can be measured in terms of spawning biomass or other appropriate measure of the stock's reproductive potential. The biomass level that a stock can decline to before being declared overfished (stock abundance is too low) and requiring a rebuilding plan. It can be no lower than 50% of the BMSY.
The market value of listed securities requires a market value of listed securities of $50 million and a market value of publicly held shares of $15 million.
Small cap companies
These companies could either be relatively new start-ups or businesses that are still in the developmental stage. In terms of market cap, these companies generally come in below Rs. 5,000 crores.
Selection criteria
Market capitalization - Market capitalization must be greater than or equal to US$20.5 billion. These market cap eligibility criteria are for addition to an index, not for continued membership.
Joel Greenblatt's magic formula for investing works on two principles – the current price of a stock and the parent company's net operational costs. It suggests you invest in the stocks of companies with extraordinary return on capital employed (ROCE) or high earnings yield.
Sizing up stocks
Large-cap: Market value of $10 billion or more; generally mature, well-known companies within established industries. Midcap: Market value between $3 billion and $10 billion; typically established companies within industries experiencing or expected to experience rapid growth.
This is how the two Magic Formula investing ratios are calculated: Return on invested capital (ROIC) = EBIT / (net working capital + net fixed assets). Earnings yield = EBIT / Enterprise value.
The magic formula investing strategy is based on a simple principle: buy good companies at good prices. It uses two key financial metrics to identify these companies: return on capital (ROC) and earnings yield (EY).
Stockopedia explains Magic Formula Score
An overall ranking for each stock is created by combining the rank of a company's Return on Capital vs the market (its quality) with the rank of its Earnings Yield (its cheapness).
The magic formula is a simple, rules-based system designed to bring high returns within reach of the average investor. By following a simple, algorithmic approach, the magic formula allows investors to easily identify outperforming or undervalued companies, without letting emotions or instinct cloud their judgment.
Small-cap companies have a market capitalisation of less than ₹5,000 crores. These companies are relatively smaller in size and have a significant growth potential.
Fully diluted market cap — also known as fully diluted valuation (FDV) - refers to the market cap of a project once all its tokens have been released into circulation. It is basically an estimation of a project's future market capitalisation.
If a company initially lists with a bid price below $4 under the alternative requirement contained in Rule 5505(a)(1)(B), but subsequently achieves a $4 closing price for at least five consecutive business days and, at the same time, satisfies all other initial listing criteria, it will no longer be considered as ...
Notwithstanding the foregoing, if during any compliance period specified in this Rule 5810(c)(3)(A) a Company's security has a closing bid price of $0.10 or less for ten consecutive trading days, the Listing Qualifications Department shall issue a Staff Delisting Determination under Rule 5810 with respect to that ...
Apple is the largest company in the world, with a market cap of $3.68 trillion. It's followed by Nvidia ($3.54 trillion), Microsoft ($3.15 trillion), Alphabet ($2.36 trillion), and Amazon ($2.36 trillion).
The minimum stock level represents the lowest or minimum quantity of a product a company should maintain at any given time to avoid stockouts, backorders, or missed sales. Consider it as the safety stock or threshold your product should never dip below.
The fifty percent principle is a rule of thumb that anticipates the size of a technical correction. The fifty percent principle states that when a stock or other asset begins to fall after a period of rapid gains, it will lose at least 50% of its most recent gains before the price begins advancing again.
Unlike A shares or Hong Kong stocks, U.S. stocks do not adopt the concept of a board lot, and therefore there is no trading unit limit. The minimum trading unit is 1 share.