MSEX

Capital-structure-agnostic earnings yield. Pairs with Greenblatt ROC to compute the famous Magic Formula rank (the universe-rank of earnings yield plus universe-rank of return on capital). Pre-tax operating earnings divided by the full claim on the firm gives a cleaner cross-firm valuation comparison than P/E or earnings yield alone, because it strips out the distortions from leverage, cash, and tax structure.

An ABSOLUTE intrinsic-value signal, distinct from the relative multiples (PE, EV/EBITDA) which only compare a stock to its industry peers. Intrinsic value comes from the Residual Income Model: book value plus the present value of the residual income (earnings above a charge for the cost of equity) the firm is forecast to generate. This is the best-VALIDATED absolute value signal in the academic literature (Frankel & Lee 1998, replicated through 2026): the value-to-price ratio robustly predicts 1-3 year cross-sectional returns, survives every major factor model, and subsumes book-to-market. Because it is scored across the WHOLE universe (not within-industry), it complements the relative multiples rather than double-counting them. Pair it with a quality screen (Piotroski) to avoid value traps, and read the EPV decomposition to see whether a discount is unpriced earnings power or just speculative growth coming out of the price. One caveat: the model anchors on book equity, so for low-book, buyback-heavy, or asset-light firms (think Apple or Coca-Cola) book is a poor floor and the model can read durable franchises as wildly overvalued. Readings are clamped, and the metric is currently shadow-scored — shown for context, with zero weight in the fundamentals grade — pending validation.

Useful when earnings are negative, noisy, or one-time-distorted (early-stage growth, restructurings, cyclical troughs). Works best within an industry, not across — gross margin profiles vary so wildly that 1x P/S for a software company means something completely different from 1x P/S for a grocery chain.

Sanity-check on earnings quality — a ratio of 1.0 means every dollar of GAAP earnings shows up as free cash flow. Persistently below 1.0 means working-capital build or capex is consuming earnings; persistently above 1.0 is unusual and may flag accounting conservatism (heavy non-cash charges) or a one-time release. Trend matters more than absolute level.

Free cash flow the business throws off, divided by what the market currently charges for the equity. Treats the equity claim as a perpetual stream of free cash. More honest than earnings yield because it reflects the cash actually available to shareholders after all reinvestment. Cyclicals can swing below zero in a downturn — read with the trailing-cycle range.

Joel Greenblatt's reformulation of return-on-capital, designed to filter for businesses that earn high pre-tax returns on the tangible operating capital that actually generates EBIT. Excludes goodwill and acquired intangibles so that two firms with the same operating economics rank similarly regardless of acquisition history. Pairs with Greenblatt's Earnings Yield (EBIT/EV) to produce the famous 'Magic Formula' rank — quality stocks at value prices.

First-line profitability measure — how much revenue is left after the direct cost of producing it. Stable or rising gross margin signals pricing power and low input-cost exposure; falling gross margin is one of the earliest reliable signals of competitive pressure or commodity-input squeeze. Industry context is everything: 30% gross margin is excellent for a grocery chain and disastrous for a software company.

Pre-capex version of cash conversion: compares operating cash flow directly to net income, before subtracting capex. Numbers persistently below 1.0 suggest accruals are doing the work (revenue recognised before cash collected, or expenses deferred). Numbers above 1.0 are typically driven by D&A exceeding true economic depreciation — a mild positive sign but not always meaningful.

Captures the leverage between revenue and operating profit — the core test of whether a business converts sales into income at the operating level. Independent of capital structure (excludes interest) and tax-jurisdiction noise. Trend matters as much as level: an improving operating margin indicates pricing power or operational efficiency gains; a falling margin signals input-cost pressure, wage inflation, or competitive erosion.

The headline profitability metric. Net income divided by average book equity tells you how productive each dollar of shareholders' capital is. High sustained ROE compounds book value when the business can reinvest at a similar return. Two warnings: ROE rises mechanically with leverage (high D/E inflates ROE without making the business better), and aggressive buybacks can shrink the equity denominator faster than they shrink earnings, artificially boosting ROE even as fundamental returns are flat.

Measures how productive the actual operating capital base is, independent of capital structure. Strips out the effects of cash, leverage, and below-the-line items so you see the underlying economic engine. The benchmark is the firm's weighted-average cost of capital (WACC) — sustained ROIC above WACC creates value, sustained ROIC below WACC destroys it. The single most important profitability metric for long-term compounding.

Bottom-line growth on a per-share basis — captures both operating progress and any net buyback effect. The denominator uses the absolute value of prior EPS so a turnaround from negative to positive earnings reads with the conventional sign rather than producing arithmetic nonsense. Pair with revenue growth to separate real franchise expansion from buyback-driven per-share lift.

Top-line growth — the cleanest way to see whether the franchise is expanding. Best read alongside margin trend: revenue rising while margin compresses is often discount-driven volume rather than real growth, and can mask underlying weakness. Compare to industry peers — what looks weak in absolute terms can be best-in-sector if the industry is contracting.

Net income divided by market cap, expressed as a percent. Lets you compare equity earning power directly to bond yields: a 6% earnings yield is the equity-side analog to a 6% coupon, with the difference that earnings can grow (or contract) while a bond coupon is fixed. The standard 'is the equity risk-premium adequate?' framing.

Captures the full cash return to shareholders — dividends plus share repurchases, expressed as a percentage of market cap. Buyback-heavy issuers (Apple, Alphabet) hide their real cash return behind a low headline dividend yield; total shareholder yield surfaces it. Increasingly the right lens for evaluating capital-return quality, especially for tech-era large-caps that prefer buybacks to dividends.

CCI measures how far the current typical price ((H+L+C)/3) sits from its rolling SMA, normalized by the mean absolute deviation. Originally built for commodity cycles by Donald Lambert; widely used as a generic momentum / overbought-oversold gauge on any asset. CCI is unbounded but ±100 is the conventional 'normal range' edge — readings beyond that are interpreted as strong directional thrusts or stretched extremes depending on context.

+1 while CCI is below -100 (oversold); -1 while CCI is above +100 (overbought); 0 inside the ±100 band.

+1 = oversold (stretched below the typical-price mean, mean-reversion buy bias), -1 = overbought (stretched above), 0 = inside the ±100 band.

Fires on the bar where the MACD line (EMA12 minus EMA26) crosses through the signal line (EMA9 of MACD). Bullish when MACD crosses up through signal, bearish when it crosses down. Far more commonly used as a trade trigger than divergence — see macd_divergence for the slower confirmatory tell. Whipsaws in chop; cleanest when combined with a trend-regime filter.

+1 on bullish cross (MACD crosses up through signal); -1 on bearish cross (MACD crosses down through signal); 0 otherwise.

+1 = bullish MACD-signal cross, -1 = bearish MACD-signal cross.

Bullish when %K crosses above %D while both lines are below the oversold threshold (typically 20); bearish when %K crosses below %D while both are above overbought (typically 80). Filters out mid-range stochastic crosses, which whipsaw in chop. Best used at well-defined ranges and at trend extremes.

+1 on bullish cross in oversold; -1 on bearish cross in overbought; 0 otherwise.

+1 = oversold bullish cross, -1 = overbought bearish cross.