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Magic Formula x Solvency Filter

Source: Reproduces Joel Greenblatt, The Little Book That Still Beats the Market (2005)

Names ranking near the top of Greenblatt's magic formula (the two-axis rank of high ROIC and high earnings yield), with an Altman Z-Score of 3.0+ and no losses in the last 5 years layered on. The original book prescribes mechanically holding the top ~30 names for a year and rebalancing; in the Japanese market the top of that rank tends to collect structurally declining industries and one-off profits, so a solvency cutoff is added here.

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Data comes from annual securities reports disclosed on EDINET (Japan FSA), via EDINET DB. Price-related values are as of each company's fiscal year-end (back-calculated from the disclosed trailing PER), not live quotes. Coverage: all TSE-listed companies, with names added progressively.

About the metrics used here

Greenblatt-style Magic Formula

Mechanizes "buy good companies (high ROIC) cheaply (high earnings yield)" as the average percentile rank across both axes. A score of 0.8+ means top-tier on both. The original book recommends holding the top ~30 names for a year and rebalancing. (Source: Joel Greenblatt, The Little Book That Still Beats the Market (2005))

Altman Z-Score

A bankruptcy prediction model (the original 1968 formula) that weights and combines working capital, retained earnings, operating income, market cap, and revenue. 3.0+ is the "safe" zone, below 1.8 is the "distress" zone. Used here to mechanically filter out the "cheap but dying" companies that net-cash-style screening tends to surface. (Source: Altman (1968))

Loss Years in Last 5 Years

Number of the last 5 fiscal years (0-5) in which net income was negative. 3+ flags chronic losses. A quick check that a seemingly-cheap stock isn't a habitual underperformer, and also a building block of the Graham-style defensive investor criteria (no losses in the last 5 years). (Source: This tool's core design)

Metrics we deliberately left out

Acquirer's Multiple (Carlisle-style)

Drops ROIC (the quality axis) from the magic formula and ranks by earnings yield (EBIT/EV) alone — a contrarian value approach based on the idea that good companies don't necessarily stay good (mean reversion), so quality is deliberately ignored. A U.S. backtest spanning 1973-2017 reported this beating both the magic formula and the S&P 500. This column is the percentile rank of earnings yield among all stocks (0-1, closer to 1 means higher earnings yield); the top decile (0.9+) is the rough guide. (Source: Tobias Carlisle, The Acquirer's Multiple (2017))

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