Joel Greenblatt Magic Formula Calculator
The two Magic Formula metrics: earnings yield (EBIT/EV) and return on capital (ROC).
Also available in German: Joel-Greenblatt Magic-Formula Rechner →
Inputs
EBIT (operating profit)
Also called: Operating income, earnings before interest & taxes
Where to find it: Income statement (middle), before interest and taxes.
How to derive: Revenue − operating costs (or: net income + interest + taxes).
Market capitalization
Also called: Market cap, MVE (market value of equity)
Where to find it: Shown prominently on any stock overview page.
How to derive: Share price × shares outstanding.
Total debt
Also called: Interest-bearing debt, borrowings
Where to find it: Balance sheet: short-term + long-term borrowings (bonds, loans).
How to derive: Add short-term and long-term interest-bearing debt.
Working capital
Also called: Net working capital
Where to find it: From the balance sheet: current assets − current liabilities.
How to derive: Current assets − current liabilities.
Invested capital
Also called: Capital employed
Where to find it: Derive from the balance sheet.
How to derive: Equity + interest-bearing debt − cash (simplified).
Result, live
The Magic Formula buys the best COMBINED rank of both - cheap AND good businesses. Single values mean little; the universe rank is what matters.
Joel Greenblatt's Magic Formula judges a stock on two things: how cheap it is (earnings yield) and how good the business is (return on capital). You buy what ranks highest on the two combined. This calculator gives you both metrics instantly.
How the formula works
Earnings yield relates operating profit (EBIT) to enterprise value; return on capital measures how much EBIT the deployed capital produces:
Return on capital = EBIT ÷ (net working capital + net fixed assets)
Example: EBIT $800m, EV = 9,000 + 1,500 = $10,500m → EY 7.6%. Capital = 900 + 2,400 = $3,300m → ROC 24.2%.
How to read the result
Both metrics have their own thresholds:
- Earnings yield above 8% — cheap; 5–8% average; below 5% expensive.
- Return on capital above 25% — excellent business; 12–25% decent; below that capital-heavy/weak.
The combination is what counts: the Magic Formula buys the best blend of both ranks — cheap AND good businesses.
What to watch out for
- Single values mean little — it is a ranking strategy across the whole universe, not a verdict per stock.
- Banks and utilities are excluded because EBIT/EV is distorted there.
- EBIT is backward-looking — a high yield can be a value trap if profit collapses.