Scoring model · also called F-score

    Piotroski F-score

    The Piotroski F-score adds one point for each of nine signs of improving financial strength, from positive profits and cash flow to lower debt, better liquidity, higher margins and faster asset turnover, for a score from 0 to 9.

    Piotroski F-score = Positive return on assets + Positive cash flow from operations + Higher return on assets than last year + Cash flow above return on assets + Lower long-term debt ratio + Higher current ratio + No new shares issued + Higher gross margin + Higher asset turnover

    Piotroski F-score calculator

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    Profit after all expenses, interest and taxes for the period. Enter a loss as a negative number.

    Net income for the year before. Enter a loss as a negative number.

    Net cash from operating activities, from the cash flow statement. Enter an outflow as a negative number.

    Everything the business owns, at the end of the period.

    Total assets on the prior year's balance sheet, which is also the start of the current year.

    Total assets at the end of the year before the prior year: the start of the prior year.

    Borrowing due after more than a year, at the end of the year. Enter 0 if there is none.

    Long-term debt at the end of the prior year. Enter 0 if there was none.

    Assets expected to be turned into cash or used up within a year: cash, receivables, inventory and similar items.

    Obligations due within a year, such as accounts payable, short-term borrowings and the current portion of long-term debt.

    Current assets at the end of the prior year.

    Current liabilities at the end of the prior year.

    Net sales for the period: total sales minus returns, allowances and discounts.

    The direct cost of the goods or services sold during the period (also called cost of sales).

    Net sales for the prior year.

    Cost of goods sold for the prior year.

    Proceeds from issuing new common shares during the year, from the financing section of the cash flow statement. Enter 0 if none were issued.

    Example figures

    Piotroski F-score

    7 out of 9

    The F-score is 7 out of 9.

    How it was calculated

    1. Positive return on assets = 109,000 ÷ 980,000 > 0 = 1
    2. Positive cash flow from operations = 100,000 ÷ 980,000 > 0 = 1
    3. Higher return on assets than last year = 109,000 ÷ 980,000 > 90,000 ÷ 940,000 = 1
    4. Cash flow above return on assets = 100,000 ÷ 980,000 > 109,000 ÷ 980,000 = 0
    5. Average total assets, prior year = (940,000 + 980,000) ÷ 2 = 960,000
    6. Average total assets = (980,000 + 1,060,000) ÷ 2 = 1,020,000
    7. Lower long-term debt ratio = 310,000 ÷ 960,000 > 300,000 ÷ 1,020,000 = 1
    8. Higher current ratio = 480,000 ÷ 250,000 > 470,000 ÷ 240,000 = 0
    9. No new shares issued = 1 − (0 > 0) = 1
    10. Higher gross margin = (1,600,000 − 1,000,000) ÷ 1,600,000 > (1,450,000 − 920,000) ÷ 1,450,000 = 1
    11. Higher asset turnover = 1,600,000 ÷ 980,000 > 1,450,000 ÷ 940,000 = 1
    12. Piotroski F-score = 1 + 1 + 1 + 0 + 1 + 0 + 1 + 1 + 1 = 7 out of 9

    Joseph Piotroski's nine-point score adds one point for each sign of improving financial strength: profitability, cash flow, debt, liquidity, share issues, margins and asset use.

    Where the figures come from

    Where the figures come from

    Balance sheet

    Total assets $1,060,000

    Total assets at the end of the prior year $980,000

    Total assets two years earlier $940,000

    Long-term debt $300,000

    Long-term debt, prior year $310,000

    Current assets $480,000

    Current liabilities $250,000

    Current assets, prior year $470,000

    Current liabilities, prior year $240,000

    Income statement

    Net income $109,000

    Net income, prior year $90,000

    Revenue $1,600,000

    Cost of goods sold $1,000,000

    Revenue, prior year $1,450,000

    Cost of goods sold, prior year $920,000

    Cash flow statement

    Cash flow from operations $100,000

    Cash raised by issuing shares $0

    Piotroski F-score =

    Positive return on assets1.00+Positive cash flow from operations1.00+Higher return on assets than last year1.00+Cash flow above return on assets0.00+Lower long-term debt ratio1.00+Higher current ratio0.00+No new shares issued1.00+Higher gross margin1.00+Higher asset turnover1.00

    = 7 out of 9

    Using Net income $109,000, Net income, prior year $90,000, Cash flow from operations $100,000, Total assets $1,060,000, Total assets at the end of the prior year $980,000, Total assets two years earlier $940,000, Long-term debt $300,000, Long-term debt, prior year $310,000, Current assets $480,000, Current liabilities $250,000, Current assets, prior year $470,000, Current liabilities, prior year $240,000, Revenue $1,600,000, Cost of goods sold $1,000,000, Revenue, prior year $1,450,000, Cost of goods sold, prior year $920,000, Cash raised by issuing shares $0, the piotroski f-score is 7 out of 9.

    What the F-score measures

    Joseph Piotroski published the score in 2000. He wanted to separate stronger from weaker companies among cheap stocks, those whose share price is low relative to their book value, using only the financial statements. Each of the nine signals scores 1 when it points to improving strength and 0 when it does not, so the total runs from 0 to 9.

    Most signals compare this year with last year, so the score needs two years of figures, and for return on assets and asset turnover, total assets at the start of each year.

    The nine signals

    • Profitability: positive return on assets. Net income divided by total assets at the start of the year is above zero.
    • Profitability: positive cash flow from operations. The business generated cash from its operations.
    • Profitability: higher return on assets. This year’s return on assets is above last year’s.
    • Profitability: cash flow above earnings. Cash flow from operations is larger than net income, both scaled by opening total assets. Earnings that are not backed by cash were a warning sign in earlier research.
    • Funding: lower long-term debt ratio. Long-term debt divided by average total assets fell during the year.
    • Funding: higher current ratio. Current assets cover current liabilities better than a year earlier.
    • Funding: no new shares issued. The business raised no money by issuing common shares.
    • Efficiency: higher gross margin. Gross profit as a share of sales rose.
    • Efficiency: higher asset turnover. Sales divided by total assets at the start of the year rose.

    Reading the score

    In Piotroski’s tests on US companies with high book-to-market ratios from 1976 to 1996, those scoring 8 or 9 went on to earn higher returns than those scoring 0 or 1. The calculator says which group a result falls in, or that it lies between them.

    The score counts directions, not sizes: a tiny rise in margin earns the same point as a large one, and a business can score well while still being small or unprofitable. Read the signals one by one in the working above, not only the total.

    What the F-score does not show

    • It was designed and tested on cheap, often struggling companies. For fast-growing companies that raise new shares to invest, some signals count against them by design.
    • It is not meant for banks and insurers, whose debt and liquidity work differently.
    • One year’s changes can reverse the next, so a single score says little about the trend.
    • It inherits every accounting choice in the statements it reads.

    Common mistakes

    • Dividing by total assets at the end of the year where the score uses the start of the year.
    • Reading the cash flow signal the wrong way round: it scores 1 when cash flow is larger than earnings, not smaller.
    • Comparing figures from statements prepared on different bases, for example after a restatement or an acquisition.
    • Treating the total as a verdict on the business rather than a checklist of what changed.

    Several signals are ratios with their own pages: return on assets, the current ratio, gross profit margin and asset turnover. The Altman Z-score looks at the risk of financial distress instead of the direction of change.

    To keep the calculation, download the Piotroski F-score template for Excel or Google Sheets.

    Definitions and variations

    • Return on assets and asset turnover use total assets at the start of each year, as in the original paper.
    • When the business had no long-term debt in either year, the debt ratio did not fall, so that signal scores 0.

    Read it alongside

    • Beneish M-score also uses cash flow from operations, total assets, total assets at the end of the prior year, long-term debt, long-term debt, prior year, current assets, current liabilities, current assets, prior year, current liabilities, prior year, revenue, cost of goods sold, revenue, prior year, and cost of goods sold, prior year
    • Altman Z-score also uses total assets, current assets, current liabilities, and revenue
    • DuPont analysis also uses net income, total assets, and revenue
    • Net profit margin also uses net income and revenue
    • Return on assets also uses net income and total assets
    • Asset turnover also uses total assets and revenue
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    This page is for education. It is not financial, investment, tax, accounting or legal advice. Results depend on the figures you enter and the formula definitions shown, so check them against your own statements and, where it matters, ask a qualified professional.