The Acquirer’s Multiple® is the valuation ratio used to find attractive takeover candidates.

It examines several financial statement items that other multiples like the price-to-earnings ratio do not, including debt, preferred stock, and minority interests; and interest, tax, depreciation, amortization.

The Acquirer’s Multiple® is calculated as follows:

Enterprise Value / Operating Earnings*

It is based on the investment strategy described in the book Deep Value: Why Activist Investors and Other Contrarians Battle for Control of Losing Corporations.

The Acquirer’s Multiple® differs from The Magic Formula® Earnings Yield because The Acquirer’s Multiple® uses operating earnings in place of EBIT. Operating earnings is constructed from the top of the income statement down, where EBIT is constructed from the bottom up. Calculating operating earnings from the top down standardizes the metric, making a comparison across companies, industries and sectors possible, and, by excluding special items–earnings that a company does not expect to recur in future years–ensures that these earnings are related only to operations. Similarly, The Acquirer’s Multiple® differs from the ordinary enterprise multiple because it uses operating earnings in place of EBITDA, which is also constructed from the bottom up.

All metrics use trailing twelve month or most recent quarter data.

* The screener uses the CRSP/Compustat merged database “OIADP” line item defined as “Operating Income After Depreciation.”

Like The Acquirer’s Multiple®, the enterprise multiple is a valuation ratio used to find attractive takeover candidates.

Our enterprise multiple is calculated as follows:

Enterprise Value / OIBDP

It differs from the ordinary enterprise multiple because it uses operating income before depreciation* (OIBDP) in place of EBITDA. OIBDP is constructed from the top of the income statement down, where EBITDA is constructed from the bottom up. Calculating OIBDP from the top down standardizes the metric, making a comparison across companies, industries and sectors possible, and, by excluding special items–income that a company does not expect to recur in future years–ensures that this income is related only to operations.

All metrics use trailing twelve month or most recent quarter data.

* The screener uses the CRSP/Compustat merged database “OIBDP” line item defined as “Operating Income Before Depreciation.”

There are two basic approaches to using the screeners that I call business owner, and quantitative investor.

The business owner uses the screeners as the launching pad for further research, examining each stock the way a classic, fundamental investor would: As a business. The business owner buys a stock in the screener only if it trades at a sufficiently wide discount to a conservative estimate of intrinsic value to provide a margin of safety, and passes otherwise.

The quantitative investor uses the screener to create a portfolio, and relies on the performance of the portfolio as a whole. The quantitative investor buys stocks from the screener without fear or favor, ignoring the particular ills facing any given stock, and ruthlessly play the odds, taking the long-term margin that the screener has offered over the market.

Read more in How to use the screeners.

Use the screeners to select the top-ranked stocks from the Acquirer’s Multiple database. Each screener identifies the 30 best stocks, but you don’t need to hold 30 positions. In general terms, holding more stocks leads to greater diversification, and lower volatility, but is harder to manage and requires more purchases. Fewer stocks reduces the number of purchases, but leads to great volatility, and magnifies the impact on the portfolio of an unexpected event. The larger companies found in the Large Cap Screener have historically generated lower volatility, and lower returns. The smaller companies found in the Small and Micro Cap Screener have historically generated higher absolute returns, but had much greater portfolio volatility. The broadest screener–the All Investable Screener–gives the best balance of return and volatility. Eliminate any stocks you do not want to own for any reason; however, you should hold at least 20 stocks to remain sufficiently diversified.

Read more in Four steps to implementing a quantitative value investment strategy

Market cap, or market capitalization, is the total value of a firm’s common equity.

It is calculated by multiplying the share price by the total shares outstanding.

All metrics use trailing twelve month or most recent quarter data.

Enterprise value is the total cost to acquire a company in its entirety.

It is calculated as follows:

Market Cap + Preferred Equity + Non-Controlling Interests 
+ Total Debt - Cash and Equivalents

It is favored over market capitalization as a measure of the total cost to acquire a company because it includes additional liabilities–like debt, preferred equity and non-controlling interests–that must be taken on by the acquirer.

All metrics use trailing twelve month or most recent quarter data.

Operating earnings is an estimate of the income flowing to the owners of a company that adjusts for a company’s capital structure: the mix of debt and equity used by the company to finance its operations.

It is a substitute for EBIT.

Operating earnings are calculated as follows*:

Revenue - (Cost of goods sold + Selling, general and administrative costs + Depreciation and amortization)

Interest repayments reduce earnings and are tax deductible, so a company’s debt impacts its reported earnings. By adjusting for the impact of interest and taxes, we can compare two company’s with different capital structures on a like-for-like basis.

Operating earnings differ from EBIT because the operating earnings figure is constructed from the top of the income statement down, where EBIT is constructed from the bottom up. Calculating operating earnings from the top down standardizes the metric, making a comparison across companies, industries and sectors possible, and, by excluding special items–income that a company does not expect to recur in future years–ensures that these earnings are related only to operations.

All metrics use trailing twelve month or most recent quarter data.

* The screener uses the CRSP/Compustat merged database “OIADP” line item defined as “Operating Income After Depreciation.”

EBIT means “earnings before interest and taxes.”

We use operating earnings* in place of EBIT.

Operating earnings is calculated as follows:

Revenue - (Cost of goods sold + Selling, general and administrative costs + Depreciation and Amortization)

Like EBIT, operating earnings is an estimate of the earnings flowing to the owners of a company that adjusts for a company’s capital structure: the mix of debt and equity used by the company to finance its operations.

Interest repayments reduce earnings and are tax deductible, so a company’s debt impacts its reported earnings. By adjusting for the impact of interest and taxes, we can compare two companies with different capital structures on a like-for-like basis.

Operating earnings differs from EBIT because it is constructed from the top of the income statement down, where EBIT is constructed from the bottom up. Calculating operating earnings from the top down standardizes the metric, making a comparison across companies, industries and sectors possible, and, by excluding special items–non-recurring income–ensures that this income is related only to operations.

We use operating earnings to calculate The Acquirer’s Multiple®.

All metrics use trailing twelve month or most recent quarter data.

* The screener uses the CRSP/Compustat merged database “OIADP” line item defined as “Operating Income After Depreciation.”

OIBDP means “operating income before depreciation and amortization.”

It is a substitute for EBITDA.

OIBDP is calculated as follows*:

Revenue - (Cost of goods sold + Selling, general and administrative costs)

It differs from operating earnings because it includes depreciation and amortization.

Like EBITDA, it is an estimate of the earnings flowing to the owners of the company that adjusts for a company’s capital structure: the mix of debt and equity used by the company to finance its operations. Interest repayments reduce earnings and are tax deductible, so a company’s debt impacts its reported earnings.

It differs from EBITDA because it is constructed from the top of the income statement down, where EBITDA is constructed from the bottom up. Calculating operating income from the top down standardizes the metric, making a comparison across companies, industries and sectors possible, and, by excluding special items–income that a company does not expect to recur in future years–ensures that this income is related only to operations.

In addition to adjusting for interest and taxes, OIBDP also includes depreciation and amortization, which are non-cash accounting charges that reduce reported earnings. While depreciation and amortization represent real historical expenditures, to the extent they approximate real cash flows in any given year, management has discretion to direct those cash flows to other uses, like debt repayment or acquisitions.

By adjusting earnings for the impact of interest, taxes, depreciation, amortization, we can compare on a like-for-like basis two or more companies with different capital structures and accounting policies to see which is better value.

We use OIBDP to calculate our enterprise multiple.

All metrics use trailing twelve month or most recent quarter data.

* The screener uses the CRSP/Compustat merged database “OIBDP” line item defined as “Operating Income Before Depreciation.”

EBITDA means “earnings before interest, taxes, depreciation and amortization.”

We use operating income before depreciation and amortization (OIBDP) in place of EBITDA.

OIBDP* is calculated as follows:

Revenue - (Cost of goods sold + Selling, general and administrative costs)

Like EBITDA, OIBDP is an estimate of the earnings flowing to the owners of the company that adjusts for a company’s capital structure: the mix of debt and equity used by the company to finance its operations. Interest repayments reduce earnings and are tax deductible, so a company’s debt impacts its reported earnings.

OIBDP differs from EBITDA because it is constructed from the top of the income statement down, where EBITDA is constructed from the bottom up. Calculating operating income from the top down standardizes the metric, making a comparison across companies, industries and sectors possible, and, by excluding special items–income that a company does not expect to recur in future years–ensures that this income is related only to operations.

In addition to adjusting for interest and taxes, OIBDP also includes depreciation and amortization, which are non-cash accounting charges that reduce reported earnings. While depreciation and amortization represent real historical expenditures, to the extent they approximate real cash flows in any given year, management has discretion to direct those cash flows to other uses, like debt repayment or acquisitions.

By adjusting earnings for the impact of interest, taxes, depreciation, amortization, we can compare on a like-for-like basis two or more companies with different capital structures and accounting policies to see which is better value.

We use OIBDP to calculate our enterprise multiple.

All metrics use trailing twelve month or most recent quarter data.

* The screener uses the CRSP/Compustat merged database “OIBDP” line item defined as “Operating Income Before Depreciation.”

The screens are divided into three investment universes: Large Cap, All Investable, and Small and Micro Cap.

• The Large Cap 1000 universe contains the largest stocks by market capitalization. It is comparable to the Russell 1000. As at January 1, 2023, it contained about 1,000 stocks, the smallest of which had a market cap of about $8 billion.
• The All Investable universe contains the largest half of stocks by market capitalization. It is comparable to the Russell 3000. It includes the stocks in the Large Cap universe. As at January 1, 2023, it contained about 3,000 stocks with a median market cap of $1.8 billion, the smallest of which had a market cap of about $400 million.
• The Small and Micro Cap universe contains the smallest half of stocks by market capitalization. It excludes stocks traded over-the-counter. As at January 1, 2023, it contained about 1,000 stocks with a median market cap of about $400 million, the largest of which had a market cap of about $1.8 billion, and the smallest of which had a market cap of about $10 million.

For more, see the guide to the stock universes.

In February 2022 we made the following material updates to the appearance and functionality of screeners and included the financials and utilities sectors:

1. Financials and Utilities: We’re including the Financials and Utilities sectors for the first time. To accommodate the new sectors, we’re making two additional changes.
2. Expanding Number of Stocks: We’re expanding the number of stocks visible to the full dataset in the paid screeners. To increase the diversification of the screens, we’re showing the best six (6) opportunities in each industry. (If we don’t limit the opportunities to the top six in each category, there are too many stocks from some industries, particularly in the Financials sector, for example United States Banks, Investment Services, Specialty Finance and Insurance).
3. Market Cap Cut-Off: We’re also increasing the Large Cap minimum market cap to $20 billion (The All Investable / Small and Micro cut-off is approximately $2 billion.)

For more, see the updates to the screeners.

In February 2022 we made the following material updates to the appearance and functionality of screeners. The definitions of the headings are in the updates to the screeners.