Have you ever looked at the Piotroski-F-score?
A powerfull tool to scan the balance sheets of companies using their score factor as a filter. Companies w/ a score 8-9 have excellent financials.
The Piotroski F-Score is a discrete scoring system, ranging from 0 to 9, used by investors, particularly value investors, to assess a company's financial strength and identify high-quality firms. Developed by Stanford accounting professor Joseph Piotroski in 2000, it aims to help distinguish financially healthy companies from those that may be struggling.
How it's Calculated: The score is determined by evaluating nine specific financial criteria, grouped into three categories:
- Profitability (Up to 4 points):
- Positive Net Income: The company's net income is positive for the current year.
- Positive Return on Assets (ROA): The company's ROA is positive for the current year.
- Positive Operating Cash Flow (OCF): The company generates positive cash flow from its operations.
- Cash Flow from Operations > Net Income: Operating cash flow is greater than net income, suggesting high-quality earnings not reliant on accruals.
- Leverage, Liquidity, and Source of Funds (Up to 3 points):
- Decreased Long-Term Debt: The current year's long-term debt is lower than the previous year's.
- Increased Current Ratio: The current year's current ratio (current assets / current liabilities) is higher than the previous year's.
- No New Shares Issued: The company has not issued new common stock in the past year, indicating no dilution of existing shareholders.
- Operating Efficiency (Up to 2 points):
- Increased Gross Margin: The current year's gross margin is higher than the previous year's.
- Increased Asset Turnover Ratio: The current year's asset turnover ratio (revenue / total assets) is higher than the previous year's.
For each criterion met, the company receives one point. The points are summed to give a total F-Score.
Interpretation:
- 8 or 9 points: Generally considered to indicate strong financial health and a robust company, making them attractive for value investors.
- 0 to 2 points: Suggests weak financial fundamentals and potential distress, indicating a risky investment.
- 3 to 7 points: Represents an average or mixed financial health, warranting further in-depth research.
Purpose and Benefits: The Piotroski F-Score provides a quantitative, data-driven approach to:
- Filter Value Stocks: It helps filter down a list of potentially undervalued companies (e.g., those with low Price-to-Book ratios) to identify those with improving financial health, thereby reducing the risk associated with "value traps."
- Identify Strong Fundamentals: It assesses a company's financial performance, including profitability, debt management, and operational efficiency.
- Improve Returns: Historical studies have shown that strategies focusing on high F-Score companies can lead to outperformance compared to the broader market.
- Risk Mitigation: It helps in avoiding companies with deteriorating financials, which are more prone to financial difficulties.
Limitations: While powerful, the Piotroski F-Score is not without limitations. It is backward-looking, relying solely on past financial data, and may not fully capture future potential or qualitative factors like management quality or industry-specific nuances. It's most effective when used in conjunction with other fundamental and qualitative analysis.
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Perplexity does this calculation FAST ! The Piotroski F-Score for Phibro Animal Health Corporation (PAHC) is 6 as of the most recent available data.
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TIKR includes the F-Score as part of its stock screening and analysis tools, alongside other quantitative metrics like the Acquirer's Multiple and Ben Graham's Net-Nets |
