Screening for Value: Adjusting the Earnings Yield

In my last article, I used the Stockopedia screening tools to generate value investing ideas based on their earnings. I chose to use EV/EBIT, also known as Earnings Yield, since an exhaustive study by Wes Gray and Toby Carlisle showed that this was the best-performing value metric on a quantitative basis. This screen generated 29 initial ideas that I hadn't looked at in previous Screening for Value articles. As usual, I have created a Stockopedia portfolio to allow me to scroll through the Stockreports rapidly:

Before drilling down into the details of these companies, I wanted to take time to consider some of the factors that may not be captured by a simple analysis of EV/EBIT: pension deficits, working capital, provisions, deferred consideration, and lease liabilities.
Pension Deficits
In my previous articles, I mentioned that investors would be wise to adjust their valuations for the presence of any Pension Deficits. After all, most pension deficits require the company to make recovery payments, which are real cash that leaves the business that isn't available for dividends, buybacks or re-investment into future growth. The simplest way is to exclude any companies with significant deficits. However, this may miss companies that are...