Joel Greenblatt

The Magic Formula · The Little Book That Beats the Market, 2005

Neither factor has a number of his. The one measured here is ours.

Counted 11 Sep 2026.

EV/EBITours: our number or our measure≤ 12.5Not measured today.No market count is published for this figure.
Operating profit against enterprise value, computed for every company in the screened universe and used as a rank rather than as a test.
We do not publish a peer distribution for this metric.
What we changed
His earnings yield is operating profit over enterprise value. EV/EBIT is the same ratio turned over, so 12.5 is a yield of 8 percent. Our enterprise value is market value plus total debt less cash, and 12.5 is our level: he ranked this figure and set none.
ROIC after taxours: our number or our measure≥ 15%A tenth to a quarter of the 2,787 US-listed companies with a return on invested capital meet it.
Operating profit over the sum of net working capital and net fixed assets, computed for every company in the screened universe and used as a rank rather than as a test.
15% sits between the 75th percentile, 11.23%, and the 90th, 22.55%.
Who is counted
Companies with filed statements, one each; exact zeros left out as missing data; banks, capital markets firms, insurers and mortgage REITs left out (581); extremes capped at the 1st and 99th percentiles.
What we changed
His denominator is net working capital plus net fixed assets: no goodwill, no cash, and nothing about financing. The product's return on invested capital is after-tax operating profit over equity plus total debt less cash, so goodwill sits in the denominator and one filed year's tax rate in the numerator. A near neighbour of his figure, not the same one.
ROIC after tax benchmarks ›

Not measured, and why

The two ranks added. A rank, not a level.
Each company is ranked on both factors, the two ranks are added, and the best combined ranks are taken. A rank is a position in a list, not a level, and there is no threshold anywhere in the method to place in a distribution.
Financials and utilities out. An exclusion, not a level.
The screen is run with financial companies and utilities excluded from the universe. An exclusion is not a threshold and there is nothing to place.
A size floor. No level of his to quote.
The screen is run above a size floor rather than across every listed company. No figure is quoted here. The floor is a parameter of the screen rather than a fixed published line, and attributing a specific level to him on this page would be putting a number in his mouth that a reader could not check against the book.

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Joel Greenblatt

Earnings yield and ROIC

EV/EBIT≤ 12.5
ROIC after tax≥ 15%

The idea is Greenblatt's. Every number is ours.

What we changed

Two fixed levels stand in for his combined rank.

Each number of ours

EV/EBIT: A guard against a zero or negative multiple.
EV/EBIT: An EBIT yield of at least 8 percent; he set no level.
ROIC after tax: After-tax ROIC, near his EBIT over working capital plus fixed assets; he set no level.

Not run: the combined rank of both factors; financials and utilities left out; a size floor.

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