It is common to buy a stock of a valuable company when the stock price is low, and then sell it when the stock price rises to make a profit. ** Identifying "wonderful stocks" at bargain price "</ b>
So how do you screen for valuable stocks? One of the screening methods is Joel Greenblatt's Magic formula, but I would like to write how to handle it.**

① EBIT = Net income before tax + Interest expense-Interest income
② EV = Market capitalization (stock price x number of issued shares) + Interest-bearing debt-Non-business (Source: here % BC% 89% E3% 81% AF% E4% BC% 81% E6% A5% AD% E4% BE% A1% E5% 80% A4% E3% 81% A7% E3% 81% AF% E3% 81 % AA% E3% 81% 84 /))
③ Net Fixed Asset = Net Fixed Asset
④ Net Working Capital = Current assets (excluding cash) --Current liabilities (excluding interest-bearing liabilities) (Source: here )
⑤ ROI = EBIT / Investment amount (= shareholders' equity + total liabilities) ・ ・ ・ ・ ** Return on investment </ b>
⑥ ROA = Net income / Total assets ・ ・ ・ ・ Return on total assets </ b>**

EV: Enterprise Value Net Working Capital

Earning Yield: The reciprocal of PER. Earning Yield means that the higher the stock, the cheaper the stock is for its value.

```
Earning Yield=\frac{EBIT}{EV}= \frac{Net income per share}{Stock price}
```

Evaluate how efficiently a company makes a profit by using the funds invested for business activities (invested capital). (Source: here)

```
ROIC=\frac{EBIT}{Net Fixed Asset + Net Working Capital}
```

2-4 Magic formula

Consider the portfolio Q of a stock.

```
Q=\left\{Q_{i} | 1≦i≦n ,n is the number of brands\right\}
```

First, calculate the Earning Yield for each stock $ Q_ {i} $, and rank $ RankEV (Q_ {i}) $ in descending order.

```
RankEV(Q_{i})= k_{1}
```

However, $ 1 ≤ k_ {1} ≤ n $.

Next, calculate ROIC (return on invested capital) for each stock $ Q_ {i} $ and rank them in descending order.

```
RankROIC(Q_{i})= k_{2}
```

However, $ 1 ≤ k_ {2} ≤ n $

Add $ RankEV (Q_ {i}) $ and $ RankROIC (Q_ {i}) $ to get $ MF (Q_ {i}) $. The stocks are listed in ascending order of $ MF (Q_ {i}) $.

```
MF(Q_{i})=RankEV(Q_{i}) + RankROIC(Q_{i})
```

The following is an example of calculating $ MF (Q_ {i}) $.

`text`

```
------------------------------------------------
Value stocks based on Greenblatt's Magic Formula
EarningYield ROC MF(Q_{i})
PFE 0.064923 1.568456 1.0
CSCO 0.073785 0.762107 2.0
MRK 0.073066 0.762207 3.0
INTC 0.096065 0.395849 4.0
WBA 0.073070 0.602746 5.0
JNJ 0.054940 0.799281 6.0
VZ 0.094883 0.292956 7.0
KO 0.047607 2.493686 8.0
CAT 0.090941 0.292432 9.0
IBM 0.062117 0.622170 10.0
MMM 0.070541 0.509469 11.0
PG 0.048131 1.168062 12.0
V 0.036646 1.525756 13.0
DOW 0.090799 0.122963 14.0
HD 0.052903 0.520940 15.0
AAPL 0.038936 0.694292 16.0
WMT 0.054583 0.208220 17.0
MCD 0.050439 0.230028 18.0
UNH 0.057999 -1.831291 19.0
MSFT 0.033030 0.345854 20.0
NKE 0.020799 0.151520 21.0
------------------------------------------------
```

We are in the process of investing in stocks with $ MF (Q_ {i}) $ in the top 20. It is also recommended to recalculate and refresh $ MF (Q_ {i}) $ about once a year.

3 Coming Soon How much return can you get if you take the Magic formula strategy for Japanese stocks? I would like to do coding in Python and verify it.

Recommended Posts