Piotroski Score

Piotroski Score is a financial analysis tool that was developed by Joseph Piotroski, a professor at the University of Chicago. It is used to evaluate the financial health of a company by calculating its score based on nine different criteria. This score helps investors determine whether a company is a good investment opportunity or not.

To calculate the Piotroski Score, a company's financial statements are analysed and each criterion is given a score of 1 or 0. A score of 1 indicates that the company meets the criterion and a score of 0 indicates that it does not. The total score is then calculated by adding up the individual scores for each criterion. A high Piotroski Score is a positive sign for the financial health of a company, while a low score indicates that the company may be at risk of financial distress.

The nine criteria used in the Piotroski Score are:

1. Net income - A score of 1 is given if the company has a positive net income in the current year, compared to the previous year.

2. Operating cash flow - A score of 1 is given if the company's operating cash flow is positive in the current year, compared to the previous year.

3. Return on assets - A score of 1 is given if the company's return on assets is higher in the current year, compared to the previous year.

4. Leverage ratio - A score of 1 is given if the company's leverage ratio is lower in the current year, compared to the previous year.

5. Current ratio - A score of 1 is given if the company's current ratio is higher in the current year, compared to the previous year.

6. Gross margin - A score of 1 is given if the company's gross margin is higher in the current year, compared to the previous year.

7. Asset turnover ratio - A score of 1 is given if the company's asset turnover ratio is higher in the current year, compared to the previous year.

8. Quality of earnings - A score of 1 is given if the company's quality of earnings is higher in the current year, compared to the previous year.

9. Share dilution - A score of 1 is given if the company has not diluted its shares in the current year, compared to the previous year.

The Piotroski Score is a useful tool for investors who are looking to evaluate the financial health of a company. It is especially useful for identifying companies that may be undervalued, as a high Piotroski Score indicates that the company is financially healthy and may be a good investment opportunity.

If you are considering investing in a company, it is important to analyse its Piotroski Score and compare it to the scores of other companies in the same industry. This will give you a better understanding of the company's financial health and help you make informed investment decisions.