The Piotroski F-Score evaluates a company's financial health by analyzing its financial statements, including the income statement and balance sheet. Each of the nine criteria assesses specific aspects of a company's financial condition. Here is an overview of these criteria:
1. Positive Net Income
2. Positive Operating Cash Flow
3. Increasing Return on Assets (ROA)
4. Cash Flow from Operations > Net Income
5. Reduction in Long-Term Debt
6. Higher Gross Margin
7. Asset Turnover Improvement
8. No New Share Issuances
9. Higher Operating Efficiency
The Piotroski F-Score ranges from 0 to 9, with higher scores indicating stronger financial health. Companies with higher scores are generally considered more financially robust and are often preferred by investors. On the other hand, companies with lower scores may be perceived as financially weaker and riskier investments.
Investors and analysts use the Piotroski F-Score as a tool to filter potential investment opportunities. It can be especially useful when evaluating companies in distress or those with inconsistent financial performance. By examining the individual criteria that contribute to the F-Score, stakeholders gain insights into a company's financial strengths and weaknesses, helping them make more informed investment decisions.
In summary, the Piotroski F-Score is a valuable quantitative tool that assesses a company's financial condition by examining specific financial metrics. By using this scoring system, investors can better understand a company's financial health and make more informed investment choices.
