Piotroski F-score is a number between 0 and 9 which is used to assess strength of company's financial position. The score is used by financial
investor
An investor is a person who allocates financial capital with the expectation of a future return (profit) or to gain an advantage (interest). Through this allocated capital most of the time the investor purchases some species of property. Type ...
s in order to find the best
value stocks
Value investing is an investment paradigm that involves buying securities that appear underpriced by some form of fundamental analysis. The various forms of value investing derive from the investment philosophy first taught by Benjamin Graham ...
(nine being the best). The score is named after
Stanford accounting professor
Joseph Piotroski Joseph D. Piotroski is the Robert K. Jaedicke Professor of Accounting at Stanford University's Graduate School of Business, and a senior fellow at the Asian Bureau of Finance and Economic Research (ABFER). Prior to joining Stanford in 2007, Piotros ...
.
Calculation procedure
The score is calculated based on 9 criteria divided into 3 groups.
:::''Profitability''
#
Return on Assets The return on assets (ROA) shows the percentage of how profitable a company's assets are in generating revenue.
ROA can be computed as below:
:\mathrm = \frac
This number tells you what the company can do with what it has, ''i.e.'' how many doll ...
(ROA) (1 point if it is positive in the current year, 0 otherwise);
#Operating
Cash Flow (1 point if it is positive in the current year, 0 otherwise);
#Change in Return of Assets (ROA) (1 point if ROA is higher in the current year compared to the previous one, 0 otherwise);
#
Accruals
Accrual (''accumulation'') of something is, in finance, the adding together of interest or different investments over a period of time.
Accruals in accounting
For example, a company delivers a product to a customer who will pay for it 30 days l ...
(1 point if Operating Cash Flow/Total Assets is higher than ROA in the current year, 0 otherwise);
:::''Leverage, Liquidity and Source of Funds''
#Change in
Leverage
Leverage or leveraged may refer to:
*Leverage (mechanics), mechanical advantage achieved by using a lever
* ''Leverage'' (album), a 2012 album by Lyriel
*Leverage (dance), a type of dance connection
*Leverage (finance), using given resources to ...
(long-term) ratio (1 point if the ratio is lower this year compared to the previous one, 0 otherwise);
#Change in
Current ratio The current ratio is a liquidity ratio that measures whether a firm has enough resources to meet its short-term obligations. It compares a firm's current assets to its current liabilities, and is expressed as follows:-
:
The current ratio is an ...
(1 point if it is higher in the current year compared to the previous one, 0 otherwise);
#Change in the number of
shares (1 point if no new shares were issued during the last year);
#:''Operating Efficiency''
#Change in
Gross Margin
Gross margin is the difference between revenue and cost of goods sold (COGS), divided by revenue. Gross margin is expressed as a percentage. Generally, it is calculated as the selling price of an item, less the cost of goods sold (e. g. producti ...
(1 point if it is higher in the current year compared to the previous one, 0 otherwise);
#Change in
Asset Turnover ratio (1 point if it is higher in the current year compared to the previous one, 0 otherwise);
Some adjustments that were done in calculation of the required
financial ratios
A financial ratio or accounting ratio is a relative magnitude of two selected numerical values taken from an enterprise's financial statements. Often used in accounting, there are many standard ratios used to try to evaluate the overall financial ...
are discussed in the original paper.
The score is calculated based on the data from financial statement of a company. A company gets 1 point for each met criterion. Summing up of all achieved points gives Piotroski F-score (number between 0 and 9).
Interpretation
A company that has Piotroski F-score of 8–9 is considered to be strong. Alternatively, firms achieving the F-score of 0–2 are considered to be weak.
Average value of Piotroski F-score can be different in different branches of economy (e.g. manufacturing, finance, etc.). This should be taken into consideration when comparing companies with different specializations.
Other notes
* Some improvements to the Piotroski F-score were suggested in Alpha Architect and
American Association of Individual Investors
The American Association of Individual Investors is a nonprofit organization with about 150,000 members whose purpose is to educate individual investors regarding stock market portfolios, financial planning, and retirement accounts. AAII "assists ...
(AAII) official blogs.
See also
*
Altman Z-score
Example of an Excel spreadsheet that uses Altman Z-score to predict the probability that a firm will go into bankruptcy within two years ">bankruptcy.html" ;"title="probability that a firm will go into bankruptcy">probability that a firm will ...
*
Beneish M-score
The Beneish model is a statistical model that uses financial ratios calculated with accounting data of a specific company in order to check if it is likely (high probability) that the reported earnings of the company have been manipulated.
How to ...
*
Ohlson O-score
The Ohlson O-score for predicting bankruptcy is a multi-factor financial formula postulated in 1980 by Dr. James Ohlson of the New York University Stern Accounting Department as an alternative to the Altman Z-score for predicting financial distres ...
*
Fundamental analysis
Fundamental analysis, in accounting and finance, is the analysis of a business's financial statements (usually to analyze the business's assets, liabilities, and earnings); health; and competitors and markets. It also considers the overall sta ...
*
Magic formula investing
*
Value investing
Value investing is an investment paradigm that involves buying securities that appear underpriced by some form of fundamental analysis. The various forms of value investing derive from the investment philosophy first taught by Benjamin Graham an ...
References
{{Reflist
Financial risk management
Valuation (finance)
Credit scoring