Magic Formula Screener

Joel Greenblatt is the pioneer of Magic Formula investing. He developed the Magic Formula as a numbers-based, unemotional way for individual investors to beat the market over the long term. It is based on the following principles: Buy a good business, cheap (figure out what it's worth and pay a lot less). In his best-selling book, Greenblatt shows how successful investing can be made easy for investors. The formula has been extensively tested and is a clear breakthrough in the academic and professional world.

The company which had the highest return on capital would be assigned a score of 1. Similarly, the company that had the 50th best return on capital would be assigned a score of 50. Next, the formula follows the same procedure, but this time, the ranking is done using earnings yield. The company with the highest earnings yield is assigned a score of 1. Likewise, the company with the 14th highest earnings yield out of our list companies would be assigned a score of 14.

Finally, the formula just combines the score. The formula isn't looking for the company that scores best on return on capital or the one with the highest earnings yield. Rather, the formula looks for the companies that have the best combination of those two factors. So, a company that scored 32nd best in return on capital and 53rd highest in earnings yield would receive a combined score of 85 (32 + 53). A company that scored 1st in return on capital but only 150th best in earnings yield would receive a combined score of 151 (150 + 1).

Free users can only see 5 companies. Upgrade Membership to see the full list.

1132Wipro Ltd.
1236Mahindra & Mahindra Ltd.
1338Zydus Wellness Ltd.
1438Tata Steel Ltd.
1540Reliance Industries Ltd.

Score - Lower is better. The list is updated every night(8.00 pm) because the scores change based on the closing market price.

The book suggests that we should buy the top ten ranked companies in the list but the partners at Craytheon follow a different approach. We use the list as a screener to identify great companies which are available at cheap prices. e.g In March 2013 the top 10 included companies like Suzlon, Tata Steel, Castrol etc. So instead of buying all the companies, we selected Castrol has the best of those top 10 based on our fundamental analysis and only bought Castrol. There is no hard fast rule, it is upto you to decide which method you are comfortable with.

Earnings Yield = EBIT / Enterprise Value
Return on Capital = EBIT / (Net Working Capital + Net Fixed Assets)
EBIT = Earnings before Interest and Taxes
Enterprise Value = (Share price * No. of shares ) + (Short term debt + Leases + Long term Debt + Preferred Stock - Cash)

Note - Companies currently in our database : 456. Financial companies and companies with negative earnings are not included.