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Calculate Magic Formula Statistics for Almost Any Stock

One of the most common questions from followers of Joel Greenblatt's Magic Formula Investing (MFI) strategy is how exactly to calculate the earnings yield (EY) and return on capital (MFIROIC) used to produce the rankings on the official MFI site. The "bible" of MFI, Greenblatt's The Little Book that Beats the Market, provides the only detailed explanations in the first appendix. In the previously linked articles, MagicDiligence has provided some explanations and examples to help investors calculate the statistics for any stock.

However, even with this information it is a slow process to gather the data and do the calculations. The original MFI site at least provided an earnings yield number and a range for return on capital... the new one provides neither, just a list of stocks. There are some alternative MFI-like screens that provide an approximation of the EY and MFIROIC (see the new tools page). Even with these it sometimes isn't possible to find the statistics for a particular stock that interests you.

With this in mind, today MagicDiligence is releasing the MFI Statistics Calculator tool. It is simple to use - just type in a ticker and press Go!. The tool calculates both the earnings yield and return on capital figure for the stock. If MagicDiligence has research material on the stock, it will be linked. Also, the tool provides something I call "Instant Diligence", which gives those unfamiliar with MFI some perspective on how high or low the earnings yield and return on capital are, as well as an evaluation of near-term financial health. For numbers that are unusually high, the tool marks them as "Suspiciously High", which usually indicates that the business has recorded an unsustainable result in the recent past. Finally, the stats calculator provides a full and detailed listing of the calculations used to come to the final statistics.

With this information, investors can see what the Magic Formula thinks of a stock that may interest you. Want to see how popular stocks like Coca-Cola (KO) and Johnson & Johnson (JNJ) measure up in MFI terms? You can. You can also see how relatively "good" individual MFI stocks are against each other. I used this tool to do the statistics for the recent ranking of the Forbes' 200 Best Small Companies list, and also to compare 3 pharmaceutical distribution firms against each other.

A couple of caveats. First, of course, is that the way different data feeds treat certain operating expenses like restructuring and write-downs differ, which can lead to significant differences in MFI statistics. Some official MFI stocks may have unusual figures due to this. Second - financial, utility, and insurance companies cannot be rated, as per the strategy. Last, while MagicDiligence has done extensive testing, some stocks have produced strange results due to problems in the data, and some have no data at all. This can usually be seen by looking at the calculations. Some "official" MFI stocks such as Pre-Paid Legal (PPD), are (incorrectly) considered financial stocks by the tool. The vast majority of tickers tested worked correctly. If you experience problems using it, please contact me so it can be fixed.

The MFI Statistics Calculator can be used an unlimited amount by MagicDiligence Members. Those who are not can run 5 tickers a day by signing up for a free account. Feedback is always welcome, and MagicDiligence hopes to make more applications available in the future.

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Joel Greenblatt and MagicFormulaInvesting.com are not associated in any way with this website. Neither Mr. Greenblatt or MagicFormulaInvesting.com endorse this website's investment opinions, strategy, or products. Investment recommendations on this website are not chosen by Mr. Greenblatt, nor are they based on Mr. Greenblatt's proprietary investment model, and are not chosen by MagicFormulaInvesting.com. Magic Formula® is a registered trademark of MagicFormulaInvesting.com, which has no connection to this website. The information on this website is for informational purposes only and solely represents the views and opinions of the author. No warranty is provided or implied as to the accuracy, completeness, or timeliness of this information. This information may not be construed as investment advice of any kind, nor can it be relied upon as the basis for stock trades. Alexander Online Properties LLC, the proprietor of this website, is not responsible in any way for losses or damages resulting from the use of this information. Alexander Online Properties LLC is not a registered investment advisor. All logos are trademarked properties of their respective companies.

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