On Thursday, I told you about the advice Warren Buffett is all too happy to offer, but most investors seem to ignore.

Today, I’m going to share with you — in the hopes that we can all heed his words a little more closely — the seemingly “magic” formula he uses to consistently beat the market.

Ready for it?

Stuff minus debt.

That’s it. That’s the golden ticket.

That’s how an investor can determine the intangible value of a business.

A lot of people try to make this more complicated than that, but it’s really not. 

After all, the accountants are not trying to trick anyone: Each line is exactly what it says it is. “Cash” is self-explanatory. “Inventory” is stuff. “Receivables” are unpaid bills sent for goods delivered or services rendered. And so forth.

Yet balance sheets hold this weird mystique. They scare the hell out of a lot of investors. But they aren’t rocket science. Stuff owned minus debt owed. Simple as that. It’s just addition and subtraction.

Not only is it simple, it’s standardized. That’s all accounting is — it’s not black magic. It’s just a tried-and-true system of common and accepted rules for how a company’s books are put together.

At the end of the day, every balance sheet adds up the same way:

Assets – Liabilities = Shareholder Equity

To determine the value of any public company‘s business, subtract shareholder equity from market capitalization. That is the value of the business. Don’t overthink it. It’s just math using readily available numbers.

So, let’s take a look at three examples, Google (Nasdaq: GOOG), Johnson & Johnson (NYSE: JNJ) and Coca-Cola (NYSE: KO). Each of the abbreviated balance sheets below (all gathered from the companies’ first quarter 2013 results) contains the basics. They all adhere to the balance-sheet equation above.

Then, to make an apples-to-apples comparison, I divided the company’s market cap by its shareholder equity. This nifty metric — called the price-to-book (P/B) ratio — shows which business is the most valuable relative to its individual equity.

There are three ways these numbers can shake out and three (basic) conclusions to draw:

1. If a company trades at a slim premium to its equity, the company’s intangible business value — the collective ability of its resources to use the company’s capital and equipment to earn a profit serving customers — is low.

2. In some cases, the value of a company’s stocks actually drops below the value of its net assets. This is when investors lose confidence in a business as a going concern, which can happen for a number of reasons. J.C. Penney (NYSE: JCP), for example, hired a CEO who attempted to remake the venerable retailer. But customers resisted and stopped shopping there, and revenue and earnings fell. Now the company’s market cap is only slightly higher than its equity. This is an atypical and unhealthy balance-sheet scenario. The implication couldn’t be more crystal-clear: The business of J.C. Penney is perceived by Wall Street to be in peril.

3. In the case of a company with a strong market cap but with little equity (resulting in a high P/B), Wall Street has placed a rich value on the company’s business. To put it another way, investors perceive the company’s ability to earn future profits as very strong.

The final step in the process is the relationship between market capitalization and equity. By tapping into this metric we can find companies whose business is highly valued by Wall Street.

From there, it’s up to investors to determine their goals so they can concentrate on the criteria that matters most. Remember, when you set your investment goals, given the number of choices you have, it’s critical to determine what you don’t want as much as it is to decide what you want.

My goal is to find the next big thing — the Game-Changing Stocks. My readers and I are not looking for stocks with any certain fundamental trait. We’re not even looking for the merely very good. One company that fits a certain criteria could be a 10-bagger, while another could be a completely pedestrian investment.

What does all of this mean? Unfortunately, it means there is no magic formula for picking stocks.

We can tell this from looking at one of the most famous investors of all time. Just look at the publicly available records of Ben Graham, the father of value investing. Graham was a good college professor — his star pupil Buffett went on to do pretty well for himself — but Graham did not himself run a particularly successful portfolio. Indeed, if one back-tests the criteria he outlined in “Ben Graham’s Last Will and Testament,” published by Forbes and available online, one sees that the picks were pretty humdrum.

So, again, there is no magic formula. I know, I know — I was just telling you I had a magic formula of my own. Well that was just simple math. There’s no real magic to it. And let me be brutally honest. If I had such a formula, I wouldn’t tell you! I wouldn’t share it with anyone. My head butler would call his chief of staff, who would relay my picks to my broker.

But that doesn’t mean you can’t use the tools I’ve listed here to narrow down your next stock purchase.

P.S. Some of the best value investors out there don’t buy shares of companies listed on an exchange. Instead, these investors are allowed to invest in a market only available to the richest 6% of Americans. But there is a back-door into this market I want to show you today. And the results speak for themselves… 97%… 140%… 180%… returns in just a short period of time. To learn more about this opportunity, click here.