
In our last post we looked at Greenblatt’s use of Return on Capital as a means of identifying quality companies that know how to turn a small investment into a substantial return. In this posting we will look at his next criteria earnings yield.
What is it?
EBIT
enterprise value
What does it tell us?
EBIT is defined as Earning before Interest and Tax, as we discussed in the last posting that works out to the raw income flowing into the company.
Enterprise Value is defined as market capitalization – cash and cash equivalents + preferred stock + debt
Read More...
|
Greenblatt in his book The Little Book that Beats the Market advocated a simple method for attaining substantial stock returns. In this series we are looking at the particulars of this investing theory to both understand why he advocated the elements of this theory and what Benjamin Graham would have thought of the approach that Greenblatt was advocating. The next part in this series looks at Return on Capital or ROC.
What is it?
Earnings Before Interest and Tax (EBIT)
Net Working Capital + Net Fixed Assets
EBIT is a raw calculation of the regular company income excluding the income from irregular or non-reoccurring activities.
Read More...
|
| |
|