Higher Earnings Yield =Undervalued Stock
Higher Return on Invested Capital(ROIC)/Return on Capital Employed(ROCE) =Better Quality
RANK stocks on ROIC/ROCE(1 for Highest ROIC/ROCE)
SUM the Ranks
RE-RANK on Combined score
Good ROCE/ROIC over a period of time. Min 22%.
Attractive Earnings Yield. Min 6.5%.
Good Operating Cash Flow over a period of time.
Good Asset turnover ratio/Management Efficiency.
Stable Promoter holding.
Eliminated Stocks with too much fluctuation in Year on Year (YOY) Qrtry Sales & Profit Growth(>150% combined).
Took ROIC & ROCE & listed both rankings combined with Earnings Yield. Choose either as per your comfort.
= Return from Core Business
= Profitability relative to capital actually invested in business
ROCE = Net Operating Profit(EBIT)/Capital Employed
= Profitability relative to total capital employed in business
ROCE is pre-tax measure while ROIC is post-tax measure.
Invested Capital = Capital employed - Non-operating assets (like Cash or Cash equivalents)
Earnings yield = Net Operating Profit(EBIT)/Enterprise value.