What is Piotroski Score?
The Piotroski score is a discrete score between zero and nine that reflects nine criteria used to determine the strength of a firm's financial position. The Piotroski score is used to determine the best value stocks, with nine being the best and zero being the worst. The nine aspects are based on accounting results over a number of years; a point is awarded each time a standard is met, resulting in an overall score.
If a company has a score of eight or nine, it is considered a good value. If a company has a score of between zero and two points, it is likely not a good value.
The Piotroski score is broken down into the following categories:
Leverage, liquidity, and source of funds
Profitability Criteria Include:
Positive net income (1 point)
Positive return on assets (ROA) in the current year (1 point)
Positive operating cash flow in the current year (1 point)
Cash flow from operations being greater than net Income (quality of earnings) (1 point)
Leverage, Liquidity, and Source of Funds Criteria Include:
A lower amount of long term debt in the current period, compared to the previous year (decreased leverage) (1 point)
Higher current ratio this year compared to the previous year (more liquidity) (1 point)
No new shares were issued in the last year (lack of dilution) (1 point).
Operating Efficiency Criteria Include:
A higher gross margin compared to the previous year (1 point)
A higher asset turnover ratio compared to the previous year (1 point)