Computerized Investing > March/April 2006

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There appears to be an inconsistency in Table 1 of “The Magic Formula Approach to Stockpicking” article in the January/February 2006 issue [which presents a stock screen based on Joel Greenblatt’s recent book, “The Little Book That Beats the Market”]. I do not think that the amount used in the example for “excess cash” agrees with the footnoted definition. The amount used in the example is $340.3, which is the amount of short-term investments. The footnote indicates that “excess cash” is the sum of cash and short-term investments. This amount is $340.3 + $216.0 = $556.3

What is the correct definition, and what is the correct amount?


CI Editor Responds: Both the definition and example in the table are correct. Cash of $216.0 and short-term investments of $340.3 are used to reduce the enterprise value. The equation for enterprise value is market cap + interest-bearing debt – excess cash. For our example:

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