Simplified Seven Levels of Implied Return Weight Value Formula

Dec 27, 2025

(i)

L7 Implied Return Weight Value

= ROIC × EPS

P/E ÷ ROIC Weight Ratio Sorting Strategy, the lower the better, is adopted by Joel Greenblatt, Warren Buffett, Charlie Munger and Li Lu.

P/E ÷ G Weight Ratio Sorting Strategy, the lower the better, is adopted by Peter Lynch.

(ii)

L6 Implied Return Weight Value

= √(ROIC × ROA) × EPS

(iii)

L5 Implied Return Weight Value

= ROA × EPS

(iv)

Median Implied Return Weight Value

= ∛(ROIC × ROA x CICC) × EPS

(v)

L3 Implied Return Weight Value

= √(ROIC × CICC) × EPS

(vi)

L2 Implied Return Weight Value

= √(ROA × CICC) × EPS

(vii)

L1 Implied Return Weight Value (Survival Mode)

= CICC × EPS

CICC

= 100 × { (1 + 10Y or 30Y Treasury Notes Yield Ratio) × (1 + D/E × [1 + Prime Ratio + Spread Ratio) ÷ (1 + D/E) - 1 }

(viii)

REMARK :

Which is the Intrinsic Value or the nearest to the Intrinsic Value?

(ix)

Mental Model:

“In the short-run the stock market is a voting machine, whereas in the long-run a weighing machine.” – Benjamin Graham

P/E is a function of Growth.

The weight effect of Growth is reflected in ROIC.

(x)

Why should Investor rely more on Profitability than Growth?

(1)

Growth is decided by the changes of only one entity:

Profit in P/L

(2)

Profitability (for example ROIC) is decided by the simultaneous changes of three entities :

Profit in P/L

Total Equity in B/S

Total Interest Bearing Debt in B/S

Moreover, ROIC is a booster to Future Growth:

Expected Future Growth = ROIC × Reinvested Rate of Profit after dividend issuance

By analogy:

ROIC is the Hen,

Egg is the Reinvested Rate of Profit after dividend issuance,

Expected Future Growth is the baby chick in the hatching.

(3)

Can we unite them?

Yes, by make use of geometric mean:

100 × √(ROIC Ratio × G Ratio)

100 × { √[ (1+ROIC Ratio) × (1+G Ratio) ] - 1 }

(4)

Above is a basic intrinsic modelling knowledge

and technique that we must acquire in stock evaluation.

(xi)

Introducing Growth into the formula:

Implied Growth_Return Weight Values Worth to Evaluate

(1)

Either,