How smallcase returns are calculated

Taking the example of Magic Formula smallcase to show how we have calculated the returns that you can see on the platform. This smallcase has the following methodology

a. Calculate Earnings Yield = EBIT / enterprise value

b. Calculate Return on Capital = EBIT / (Net fixed assets + working capital)

c. EY Rank: Rank the stocks in descending order based on Earnings Yield and assign a rank number to each

d. ROC Rank: Rank the same stocks in descending order based on Return on Capital and assign a rank number to each

e. Add the rankings and select stocks that have the lowest combined ranking score

Rebalance schedule for this smallcase is quarterly. So our model applies the above set of criteria at the end of each quarter historically, to generate the list of stocks for that quarter. Based on the performance of these stocks in that quarter, the returns are calculated

All the inputs that go into the model are in the form of data available at that point of time in history