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Piotroski F-score: Rating a company's financial health
Piotroski F-score rates companies based on their recent performance, and Value Research can make it much easier for you
08-Feb-2022 •Research Desk
For a long time in our lives, we have used a score or rating to rank and choose things. From the trading cards that we used to play as kids to which show to watch next based on the critics' scores. What if there was a comprehensive score that determined the financial health of a company? It would make our investment decisions a lot easier. In our previous article regarding essential checks, we looked at the Altman Z-score. In this article, we explain the Piotroski F-score.
Meaning of Piotroski F-score
Twenty years ago, Joseph Piotroski, an accounting professor at the University of Chicago, devised a methodology to score a company and determine the overall strength of its financial position. The Piotroski F-score was first published in 2000. The stocks are rated on a score of 0 to nine based on nine parameters, nine being the best. For every criterion that are met, the company is given one point, and if it is not met, then no points are awarded. The points are then added up to determine the best value stocks. Piotroski stated that the financial strength of a company could be determined using data solely from its financial statements. To know in detail about how to calculate the score, the constituents, and interpretation, you can read our detailed article here.
How effective is the Piotroski F-score?
Although the score takes into account several factors, readers must know that the score is based on the recent performance, and points out to the current outperformer in terms of profitability and financial improvement on a relative basis to its past. Thus, the score rewards recently attractive performers more than consistent performers. If a company has a low score, that does not necessarily mean that its financial position is weak. But yes, it means that it has not performed well recently. Therefore, the Piotroski F-Score comes in handy to find out the companies which have performed or underperformed recently as compared to have not performed in the current year.
How can you get Piotroski F-score for stocks instantly?
To manually calculate the score, you have to scour through the financial statements of all the companies you want to evaluate. What if there was an easy way? And yes, there is. Value Research can help you. You can go to our stock screener page under the 'Stocks' tab and screen stocks based on Piotroski F-score. For example, here are some companies that have performed well recently based on the Piotroski score.
Also read: Altman Z-score: What does it tell about a company?
