# Piotroski F-Score (Ofer Abarbanel online library)

Piotroski F-Score is a number between 0-9 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 (nine being the best). 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]

Profitability

1. Return on Assets (1 point if it is positive in the current year, 0 otherwise);
2. Operating Cash Flow (1 point if it is positive in the current year, 0 otherwise);
3. Change in Return of Assets (ROA) (1 point if ROA is higher in the current year compared to the previous one, 0 otherwise);
4. Accruals (1 point if Operating Cash Flow/Total Assets is higher than ROA in the current year, 0 otherwise);

Leverage, Liquidity and Source of Funds

1. Change in Leverage (long-term) ratio (1 point if the ratio is lower this year compared to the previous one, 0 otherwise);
2. Change in Current ratio (1 point if it is higher in the current year compared to the previous one, 0 otherwise);
3. Change in the number of shares (1 point if no new shares were issued during the last year);

Operating Efficiency

1. Change in Gross Margin (1 point if it is higher in the current year compared to the previous one, 0 otherwise);
2. Change in Asset Turnover ratio (1 point if it is higher in the current year compared to the previous one, 0 otherwise);

Some adjustments that were done in calculation of the required financial ratios are discussed in the original paper.[1]

The score is calculated based on the data from financial statement of a company. A company gets 1 point for each met criteria. Summing up of all achieved points gives Piotroski F-Score (number between 0-9).

Interpretation

A company that has Piotroski F-Score of 8-9 is considered to be strong. Alternatively, firms achieving the Score of 0-2 are considered to be weak.

Average value of Piotroski F-Score can be different in different branches of economy (e.g. manufacturing, finance, etc.) It should be taken into consideration while comparing companies with different specialization.

Other notes

• Some improvements to the Piotroski F-Score were suggested in AlphaArchitect[2]and American Association of Individual Investors (AAII)[3] official blogs.

References

1. ^ Jump up to:ab Piotroski, Joseph D. (January 2002). “Value Investing: The Use of Historical Financial Statement Information to Separate Winners from Losers” (PDF). The University of Chicago Graduate School of Business.
2. ^“Value Investing Research: Simple Methods to Improve the Piotroski F-Score”. Alpha Architect. 2015-05-05. Retrieved 2017-01-19.
3. ^Investors, American Association of Individual. “AAII: The American Association of Individual Investors”. www.aaii.com. Retrieved 2017-01-19.

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