Magic Formula Ranking Lab
Transparently rank manually supplied companies by earnings yield and return on capital, with separate component ranks.
How to use this Magic Formula Ranking Lab
The Magic Formula Ranking Lab implements a classic-style two-factor ranking framework from user-supplied operating data. It calculates an earnings-yield proxy and a return-on-operating-capital proxy, ranks companies on both, and combines those ranks. It is an educational ranking exercise rather than a recommendation or intrinsic-value model.
Calculation logic
Earnings yield is EBIT ÷ enterprise value. Return on capital is EBIT ÷ (net working capital + net fixed assets) for this simplified input model. Higher values rank better. Equal metric values receive the same competition rank, preventing arbitrary ordering merely because tied rows appeared earlier in the input file. Combined rank is the sum of the two component ranks.
Worked interpretation
If two companies have identical earnings yield, they should not receive different EY ranks solely because one was typed first. Tie-aware ranking removes that accidental bias. The combined rank still remains only a mathematical ordering of the supplied metrics.
What this result does not prove
The simplified formulas are not appropriate for every sector. Financial companies, negative working capital, unusual leases, one-off EBIT and enterprise-value adjustments can require specialized treatment. Ranking also ignores governance, growth durability, accounting quality and valuation beyond the supplied fields.
Methodology, data and limitations
This Finin2min tool separates calculation from recommendation. Inputs, return assumptions and stress parameters remain visible and editable. Results are educational scenarios, not forecasts or suitability advice.
Primary / official references
Questions & answers
What does the Magic Formula Ranking Lab calculate?
The Magic Formula Ranking Lab implements a classic-style two-factor ranking framework from user-supplied operating data. It calculates an earnings-yield proxy and a return-on-operating-capital proxy, ranks companies on both, and combines those ranks. It is an educational ranking exercise rather than a recommendation or intrinsic-value model.
What assumptions drive the result?
Earnings yield is EBIT ÷ enterprise value. Return on capital is EBIT ÷ (net working capital + net fixed assets) for this simplified input model. Higher values rank better. Equal metric values receive the same competition rank, preventing arbitrary ordering merely because tied rows appeared earlier in the input file. Combined rank is the sum of the two component ranks.
Can I treat the result as a forecast or recommendation?
No. The output is an educational scenario generated from the values entered. It does not predict market returns, recommend a security or establish suitability for an individual investor.
How should I handle market or mutual-fund data?
Use a current, complete dataset with a recorded effective date. Where the page requires imported scheme, NAV, TER, portfolio or industry data, Finin2min should publish or retain the source authority, retrieval date, parser version and file hash.
What are the main limitations?
The simplified formulas are not appropriate for every sector. Financial companies, negative working capital, unusual leases, one-off EBIT and enterprise-value adjustments can require specialized treatment. Ranking also ignores governance, growth durability, accounting quality and valuation beyond the supplied fields.