Fundamental Ratios

There are some ratios which are specific to Magic Formula, which is a part of my initial hypothesis. These are:

Return on Capital (ROIC) = EBIT/(Net working Capital + Net Fixed Assets)

Earnings Yield (EY) = EBIT/Enterprise Value

EBIT: is calculated as the trailing twelve months operating profit if available

Net Working Capital: is calculated as Total Current Assets – Excess Cash – Total Current Liabilities if Total Current Assets exceeds Total Current Liabilities, otherwise it is zero

Net Fixed Assets: is calculated as Total Assets – Total Current Assets – Total Intangible assets

Enterprise Value: is calculated as Market Cap + Long-Term Debt + Minority Interest + Preferred Stock – Excess Cash. If the returned value for Enterprise value is negative, then a default value of 1 is used.

For a more comprehensive overview on different financial ratios, please refer these important links –

http://www.netmba.com/finance/financial/ratios/

http://financial-education.com/category/ratio-analysis/

http://www.authorstream.com/Presentation/aSGuest10030-135377-fundamentals-others-misc-ppt-powerpoint/

http://www.stator-afm.com/fundamental-analysis.html

http://www.investopedia.com/university/ratios/

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