Automated Stock Analysis with the Piotroski Score

The  automated stock analysis Excel sheet (version 8)  now calculates thePiotroski Score for the last 9 financial years for Indian stocks.

In January 2002, Prof. Joseph Piotroski wrote a paper titled, Value Investing: The Use of Historical Financial Statement Information to Separate Winners from Losers which detailed a method of buying stocks based on 9 balance sheet based criterion. It is now known as the Piotroski Score or the Piotroski F- Score. He presented a back-testing study which supported the utility of the method.Value investors could have increased their returns by 7.5% if they had used this method 20 years ago.

Here is the list of criteria used to calculate the Piotroski Score. This and the calculation in the sheet is based on  Building a Financial Model

Piotroski Score Metrics

  1. Return on Assets (ROA):  Net income relative to (divided by) total assets. One point if positive. Zero if negative.
  2. If this financial years ROA is greater than previous financial years ROA, one point. Else zero.
  3. Cash flow return on assets (CFROA): Operating cash flow relative to total assets. One point if positive. Zero if negative.
  4. If CFROA is greater than ROA, one point. Else zero.  This measures the quality of earnings.
  5. Leverage = long-term debt relative to total assets. If leverage has decreased this financial year, one point, else zero.
  6. Liquidity.  The Current ratio is current assets divided by current liabilities. One point if last reported current ratio is greater than that for the previous financial years.  Else zero.
  7. One point if the shares outstanding has remained the same or decreased. Else zero.
  8. Asset turnover: Total sales relative to total assets.  One point if this is higher than that for pervious financial year. Else zero.
  9. Gross margin: Gross profit relative to sales. One point if higher than that for previous financial year.

With these metrics a company can be given a Piotroski Score.  Higher the score, better the strength of the company and confidence it its operation.

Version 8 of the freefincal stock analyzer computes the Piotroski Score using 10-year financials from Morning Star India. Thus the score is obtained for the last 9 financial years.

Here is an example (click to enlarge):

Piotroski Score for Indian Stocks

 

Other features of the freefincal stock analyzer

The automated stock analyzer

  • pulls annual (standalone/consolidated) and quarterly financials from Value Research online
  • pulls financials from morningstar and analyzes them, adjusted
  • pulls adjusted stock price history from money control, and
  • calculates intrinsic value six different ways!

Valuation models available:

1) Price Multiple Model

2) Sustainable Growth Rate

3) Book Value Growth Rate (Buffett’s approach to valuation)

4) Discounted Cash Flow (DCF) 

5) Reverse DCF Valuation

6) Graham formula  and Graham number

All necessary links for learning each valuation model is provided in the Excel sheet itself. Following the flow of information in the sheet, a new investor should be able to understand how the valuation is done.

Download the freefincal stock analysis sheet version 9 (Dec. 2015)

Install Financial Freedom App! (Google Play Store)

Install Freefincal Retirement Planner App! (Google Play Store)

book-footer

Buy our New Book!

You Can Be Rich With Goal-based Investing A book by  P V Subramanyam (subramoney.com) & M Pattabiraman. Hard bound. Price: Rs. 399/- and Kindle Rs. 349/-. Read more about the book and pre-order now!
Practical advice + calculators for you to develop personalised investment solutions

Thank you for reading. You may also like

About Freefincal

Freefincal has open-source, comprehensive Excel spreadsheets, tools, analysis and unbiased, conflict of interest-free commentary on different aspects of personal finance and investing. If you find the content useful, please consider supporting us by (1) sharing our articles and (2) disabling ad-blockers for our site if you are using one. We do not accept sponsored posts, links or guest posts request from content writers and agencies.

Blog Comment Policy

Your thoughts are vital to the health of this blog and are the driving force behind the analysis and calculators that you see here. We welcome criticism and differing opinions. I will do my very best to respond to all comments asap. Please do not include hyperlinks or email ids in the comment body. Such comments will be moderated and I reserve the right to delete  the entire comment or remove the links before approving them.

Do let us know what you think about the article