The investment strategy "The Magic Formula" is based on Joel Greenblatt's "A little book that beats the stock market". The formula tries to find low-value companies with high returns using two ratios.
1-Return on Capital (ROC) = Ebit/invested Capital
2-Earnings Yield (EY) = Ebit/ev Formula
The formula first sorts all companies with a high Return on Invested Capital (RoC) and then the lowest valuation using EBIT/EV%. By summing the scores of both ratios, you get the best shares at the lowest valuation, at the top of the list.
Where do I find the key figure?
You will find all strategy key figures under the Strategy category.
We also have ready-made strategy templates with ready-made key figures.
Why does Ranking skip certain numbers?
Our calculation includes both nordic and global companies. All companies receive their own value (Rank) depending on where they end up in the calculation. If you are a Premium member, you do not see the global companies' rank and you only see the value for the nordic companies.
The Magic Formula (TMF) is high risk.
That is why it is especially important that you do your own analysis of the companies that appear in the strategy page.
TMF is based on two key figures that are only calculated from the latest report. ROC & EY. The company's quality/history is not taken into account.
Therefore, many small companies that submit a recent good report are included on the list. Even if the company has a short or bad history.
- See if the company has a good history.
- Investigate whether the company has a good recent report due to non-recurring income.
- See the latest news so that the company is not subject to forced redemption or has other problems.
- You can avoid many high-risk companies by only buying on larger lists.
Always do your own analysis of the company.