The Piotroskis F Score

The Piotroskis F- Score

Name- Sumit Todi

Division-B

Roll No- 16254

1
 The Piotroskis F Score

Introduction
The Piotroski F Score is the method for evaluating the companys stock. Based on this method,
we determine strength of financial position of any company. The score was named after Chicago
Accounting Professor, Joseph Piotroski who devised the scale according to specific criteria
found in the financial statements.

The Piotroski F score is a discrete score between 0-9 which reflects nine criteria used to
determine the best value stocks. (www.investopedia.com)

The Piotroski F-Score helps to evaluate the companys stock.

It helps to determine the financial strength and serves as the parameter for investment
decision.
It helps to increase the returns of a growth investment strategy.
It helps to analyze the structural differences between growth and value investing.

The Piotroskis F Score screens the stock in nine parameters:

Score Decisions
7 to 9 Good score, Buy the stock
4 to 6 Middle score, Risk involved to buy such stocks
0 to 3 Poor Score, Not to buy

These 9 parameters are clearly discussed below:

The first four criteria counts towards profitability. These criterion includes:

1. Return on assets
The return on assets measures the profitability position of the firm in terms of assets employed in
the firm.

1 point is given if the ROA of current year is greater compared to the previous year.

Return on Assets=Net income/Total assets

The analysis of ROA of The Power Finance Corporation is clearly presented below:

2
 The Piotroskis F Score

1. Return on Assets= Net income

/Total Assets

FY 2013 FY 2016
25% 24%

FY 2014 FY 2015
26% 25%

The above pie-chart shows that return on assets was lower in the year end of march 2016 compared to that
of 2015 and 2014.

2. Operating cash flow

Operating cash flow refers to the amount of cash that a company generates from revenue it
brings.
1 point is given if there is positive operating cash flow in the current year

Operating Cash Flow= Net Income + Depreciation

The analysis of Operating cash flow of The Power Finance Corporation is clearly presented
below:

2. Operating Cash Flow= Net

Income + Depreciation

FY 2013
FY 2016
20%
28%
FY 2014
25% FY 2015
27%

The above pie chart shows the operating cashflow of this company was highest last year
compared to those of previous years.

3
 The Piotroskis F Score

3. Net income
Net income refers to the business total income for the year minus total expenses.

1 point is given if the net income is greater than than that of previous year.

Net Income= Total income for year - total expenses for year

The analysis of net income of The Power Finance Corporation is clearly presented below:

3. Net Income=Total Income- Total

Expenses
FY 2016 FY 2015 FY 2014 FY 2013

19%
29%

25%
27%

The above pie chart shows the highest net income last year compared to those of previous years.
Thus its a green signal for this company.

4. Cashflow from Operations

1 point is given if the cashflow from operations is greater than the net income.

The analysis of cashflow from operations of The Power Finance Corporation is shown in excel
sheet.

The next 3 criterion looks at the health of the balance sheet in terms of debt and number of
shareholders as prescribed below:

5. Current ratio

The current ratio is the ratio of total current asstets to the total current liabilities of the firm.

The total current assets includes those assets which are in the form of cash or can be converted
into cash within a period of 1 year. Similarly, the total current liabilities includes all type of
liabilities which will mature for payment within a period of 1 year. (Rustagi, 2011)

4
 The Piotroskis F Score

Current ratio can be calculated using below given formula:

Current Ratio=Current assets /current liabilities

The analysis of current ratio of The Power Finance Corporation is clearly presented below:

5. Current Ratio= Current

Assets/ Current Liabilities
FY 2016 FY 2015 FY 2014 FY 2013

25% 27%

25% 23%

The above pie-chart shows that current ratio was higher last year compared to previous years.
Thus we can assume this company has sufficient current assets to repay its current liabilities.

6. Debt asset ratio

It compares the debt position with the total assets of the company.

Debt ratio=Long term debt /total assets

Point 1 is given if the debt-asset ratio in current year is lower compared to that of previous year.

The analysis of debt-asset ratio of The Power Finance Corporation is clearly presented below:

6. Debt- Asset Ratio=

Long term debt/ Total
Assets
FY 2016 FY 2015 FY 2014 FY 2013

25% 24%
26% 25%

5
 The Piotroskis F Score

The above chart shows that the debt asset ratio in last fiscal year was comparatively lower than
previous year which is the green signal to buy the stock of this company.

7. Outstanding shares
The outstanding shares basically refers to the total number of the shares that are currently being
held by its shareholders. (Rustagi, 2011)

1 point is given if there was no new shares issued last year.

The analysis of outstanding shares of The Power Finance Corporation is clearly presented
below:

7. Outstanding Shares
FY 2016 FY 2015 FY 2014 FY 2013

25% 25%

25% 25%

The clear analysis is presented in excel sheet.

The last 2 factors of the Piotroskis F score looks on operating efficiency as shown below:

8. Gross Profit Margin

1 point is given if the gross margin is higher compared to the value in previous year.

Gross Profit Margin= Gross profit /Net Sales

6
 The Piotroskis F Score

The analysis of gross profit of The Power Finance Corporation is clearly presented below

8. Gross Margin= Gross Profit/

Net Sales
FY 2016 FY 2015 FY 2014 FY 2013

26% 24%

25% 25%

As shown above, the gross profit of this company has declined last year compare to previous
year. So this company loses 1 point on this criterion.

Asset turnover ratio

This ratio measures the per rupee sales generated by per rupee of tangible assets being
maintained by the firm. It can be calculated using below given formula:

Asset turnover ratio=Total sales /Total assets

It is clearly explained below:

9. Total Assets
Turnover Ratio= Net
Sales/ Total Assets
FY 2016 FY 2015 FY 2014 FY 2013

23% 26%

26% 25%

As shown above the TAT of this company was higher in march,2016 compared to previous year.

7
 The Piotroskis F Score

Based on above analysis we calculate piotroski f score of this company as below:

Year Piotroskis f score

March 31st, 2016 6 out of 9
March 31st, 2013 4 out of 9
March 31st, 2014 5 out of 9

Thus from this calculation we can conclude that the financial position of this company is
comparatively better in last fiscal year compares to previous years.

The detailed analysis regarding this is presented in excel.

Thus there is great role of Piotroskis F score method in evaluating the stocks of the company.
Based on the score, we can select the stock to invest, that is, the company stock that scores eight
or nine points can be considered strong and can be selected for investment based upon the points
mentioned above. Similarly, we can avoid or neglect those stocks whose score is lower
comparing to other stocks. Hence this score is useful in determining the strength of financial
position of any company.

8
 The Piotroskis F Score

Bibliography
(n.d.). Retrieved 12 22, 2016, from www.investopedia.com:
https://www.google.co.in/url?sa=t&rct=j&q=&esrc=s&source=web&cd=3&cad=rja&uact=8&ved
=0ahUKEwiwjqyfnYrRAhWLq48KHVWZAmEQFggjMAI&url=http%3A%2F%2Fwww.investopedia.c
om%2Fterms%2Fp%2Fpiotroski-score.asp&usg=AFQjCNE1bgMhn4jOwdkxJphbuki6B-
cX2w&sig2=3nCfBzP0AlrCG

Rustagi, D. R. (2011). financial management. New Delhi: Taxmann's Publication.