Piotroski F-score


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 investors in order to find the best value stocks. The score is named after Stanford accounting professor Joseph Piotroski.

Calculation procedure

The score is calculated based on 9 criteria divided into 3 groups.
  1. Return on Assets ;
  2. Operating Cash Flow ;
  3. Change in Return of Assets ;
  4. Accruals ;
  5. Change in Leverage ratio ;
  6. Change in Current ratio ;
  7. Change in the number of shares ;
  8. :Operating Efficiency
  9. Change in Gross Margin ;
  10. Change in Asset Turnover ratio ;
Some adjustments that were done in calculation of the required financial ratios 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.

Interpretation

The highest possible Piotroski score is 9 and the lowest is 0. Higher the score better the value of the company's stock. 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. This should be taken into consideration when comparing companies with different specializations.

Limits

The Piotroski F-score is a method invented or thought up a few decades ago. Since realities are no longer what they were when it was conceived, it can happen that this strategy, although effective, suffers from some shortcomings. For example, it is a strategy that only compares a company's results in one year to those of the previous year. This makes it difficult to apply in cyclical sectors or during particular periods such as during health crises that affect the profitability of all sectors.

Other notes