Forensic Scores
What is the Piotroski F-score?
A nine-point checklist of financial strength: profitability, cash generation, leverage, liquidity, share issuance and operating efficiency, most scored against the year before.
How it is calculated
One point for each test passed: positive net income, positive operating cash flow, return on assets up, operating cash flow above net income, long-term debt to assets down, current ratio up, no new shares issued, gross margin up, asset turnover up.
How to read it
Scores of 8 or 9 mark strong and improving businesses and 0 or 1 weak or deteriorating ones, the bands Piotroski used; many practitioners widen them to 7 to 9 and 0 to 3. It was built to sort cheap stocks, so read it together with valuation and the trend of the score over several years.
Keep in mind
Banks and brokers report no gross margin or current ratio, so the score cannot be computed for them.
Where the numbers come from
Scrutar computes the Piotroski F-score from the figures each company reports to the SEC in its annual and quarterly filings, using the XBRL data attached to those filings.