Piotroski F-score
Also known as: F-score
The Piotroski F-score is a nine-point checklist used to score how strong a company's fundamentals are, built specifically to help investors screen for financially healthy companies among that already look statistically cheap. It was developed by accounting professor Joseph Piotroski in 2000 as a way to separate the genuinely improving cheap from the ones that are cheap because the business is deteriorating.
Each of the nine criteria checks a specific sign of financial strength across profitability, and , and operating efficiency. On the profitability side, the checklist looks at whether the company is profitable, whether is positive, whether improved from the prior year, and whether exceeds , a check on . On and , it checks whether debt levels declined, whether the improved, and whether the company avoided issuing new shares. On efficiency, it checks whether improved and whether improved. A company earns one point for each condition it satisfies, for a maximum possible score of nine.
A high score, typically seven or above, signals a company whose fundamentals are improving on multiple fronts at once, profitability strengthening, health improving, and operations getting more efficient. A low score, typically two or below, signals a company where several of these measures are moving in the wrong direction at the same time, a red flag even if the 's valuation looks tempting.
The F-score was designed and tested specifically on statistically cheap , so it's most useful as a screening filter applied to a group of already low-valuation companies, helping separate the ones worth researching further from the ones that are cheap for good reason, rather than as a standalone measure to rank any regardless of its valuation.