This is a rough version of the Faustmann Ratio metric that Mark Spitznagel presents in The Dao of Capital. The purpose is to conservatively calculate the price of the company (market cap) relative to net worth. Over a medium term horizon, the theory is that companies which have a high ROIC (see my other script) combined with a low Faustmann Ratio (color coded to give you a rough idea) should generally outperform. Please don't take this short summary as an excuse to not read the full book. It's well worth your time. (I am not affiliated with the author in any way.)
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This update changes the indicator color to orange when the ratio drops below zero, as it is not necessarily a no-go but a sign of greater caution.
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Bug fixes: * Numeric display of the Faustmann Ratio is now to 2 decimal places of precision. The graph was always correct, but previously TradingView would occasionally display only a whole number.
Enhancements: * The study now works for corporations that report annually. PineScript has no feature to get the most recent balance sheet value, so I hacked this up for all values as many companies outside the US report only annually.
this is great! thanks for making it public. what is the criteria for the spitznagel roic screener and is that one public as well?
similarCardina21803
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@jabjustinbridges, the variables makes it quite easy to understand, take a look through the script and you'll be able to see the inputs => outputs
ianthetechie
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@jabjustinbridges, Sure thing. The script is indeed public and spells out the calculation about as clearly as I know how: market cap / net worth, where net worth is defined just above, and you can see how all the components are calculated. The PineScript API is a bit clunky, but I think it's pretty readable. Yes, I have a ROIC indicator as well that's public and you should be able to find it under my profile. Note that these are indicators, not screeners (I don't think TV lets you build custom screeners like this, but please someone correct me if I'm wrong). I add both the Faustmann and ROIC calculators as indicators to my fundamental analysis layout as shown in the screenshot.
vishalbx1
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I'm not sure I understand how you arrived at this formula. In the book Faustmann Ratio is defined as ROIC / Opportunity cost of capital. Could you please explain how you arrived here? Thanks!
qqj8w7m4dk2
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You rock brother
RealGoodDoc
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This is awesome, thanks!
jdewitt4
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This looks like a great tool. I want to incorporate it into my trading strategy, but does anyone have any idea why the only companies I'm finding with high ROIC's and low Faustmann ratios are companies that have their stock priced at $20 and under? I am looking at the all time performance of companies. Maybe I should just be looking at yearly performance?