What is the 'Piotroski Score'

The Piotroski score is a discrete score between 0-9 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 Piotroski score was named after Chicago Accounting Professor Joseph Piotroski, who devised the scale, according to specific aspects of company financial statements. Aspects are focused on the company’s accounting results in recent time periods (years). For every criteria met (noted below), one point is awarded; otherwise, no points are awarded. The points are then added up to determine the best value stocks.

    BREAKING DOWN 'Piotroski Score'

    The Piotroski score is broken down into profitability; leverage, liquidity, and source of funds; and operating efficiency categories, as follows:

    Profitability Criteria:

    • Positive Net Income (1 point)

    • Positive return on assets 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:

    • Lower ratio 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:

    • A higher gross margin compared to the previous year (1 point)

    If a company has a score of 8 or 9, it is considered a good value. If the score adds up to between 0-2 points, the stock is considered weak. Piotroski's April 2000 paper "Value Investing: The Use of Historical Financial Statement Information to Separate Winners from Losers," demonstrated that the Piotroski score method would have seen a 23% annual return between 1976 and 1996 if the expected winners were bought and expected losers shorted. As a starting point, Piotroski suggested investors begin with a sample of the bottom 20% of the market in terms of price-to-book value.

    Of course, with any investment system, looking at past results doesn't mean it will work the same way in the future.

    Scoring with the Piotrosky Method

    As an example of the Piotrosky scoring method in action, note the following criteria calculations for Foot Locker (FL) in 2016:

    • Profitability:

      • 2016 Net Income ($664,000,000) (Score:1 point)

      • 2016 ROA (17%) (Score: 1 point)

      • 2016 Net Operating Cash Flow ($816,000,000) (Score: 1 point)

      • 2016 Cash Flow From Operations ($816,000,000) > Net Income ($664,000,000) (Score: 1 point)

    • Leverage:

      • 2016 long-term debt ($127,000,000) versus 2015 long-term debt ($129,000,000) (Score: 1 point)

      • 2016 current ratio (4.30) versus 2015 current ratio (3.72) (Score: 1 point)

      • No new shares issued in 2016 (Score: 1 point)

    • Efficiency:

      • 2016 Gross Margin (33.94%) versus 2015 Gross Margin (33.08%) (Score: 1 point)

      • 2016 Asset Turnover Ratio (2.04) versus 2015 (2.02) (Score: 1 point)

    Foot Locker's total Piotrosky score in 2016 was a full 9, making it an excellent value proposition as of 1/28/17, according to the Piotrosky method.

    1. Cut-Off Score

      A cut-off score is a minimum credit score an individual may have ...
    2. FAKO Score

      A derogatory term for a credit score that is not one of the FICO ...
    3. Credit Score

      A credit score is a number ranging from 300-850 that depicts ...
    4. Diversity Score

      The diversity score is a measure created by Moody's Investors ...
    5. Bad Credit

      A qualification of an individual's credit history that indicates ...
    6. Prime Credit

      Prime credit is a characterization or designation of a credit ...
    Related Articles
    1. Personal Finance

      How High Is a 'Good' Credit Score?

      How high of a credit score do you need to get a home mortgage or buy a car? Read on for some actual numbers.
    2. Personal Finance

      Is My Credit Score Good Enough for a Mortgage?

      Your score is critical in determining not only whether you'll secure a loan for a home, but also what interest rate you will be offered.
    3. Managing Wealth

      Can You Hit The Highest Credit Score?

      Yes – getting the maximum credit score is doable. But the real question is, does it matter?
    4. Personal Finance

      Is It Worth Paying To Check Your Credit Score?

      Generally, a free credit report is all you need. If you've had some credit issues, it may be worth buying your credit score to get a finer level of detail.
    5. Personal Finance

      FICO Or FAKO? The Limitations of Free Credit Scores

      There's something you should know about the scores you get from free credit scoring services: They usually are not the same FICO scores lenders pull.
    6. Personal Finance

      How Bad Is My Credit Score?

      Find out how to assess your credit score to determine if it's too low or sitting at a comfortable level. Learn how to improve your creditworthiness.
    7. Personal Finance

      The 5 biggest factors that affect your credit

      Are you in the process of getting a loans? Learn how credit companies use these factors credit companies rely on to determine whether to lend to you and at what rate.
    8. Personal Finance

      The Basics of Credit When Starting Out

      For those starting out, it is important to be consistent and responsible in establishing good credit.
    9. Personal Finance

      Top Places To Get A Free Credit Score Or Report

      When's the last time you checked your credit report? With all the hacking out there, don't wait for the car dealer to find problems when you need a loan.
    10. Personal Finance

      10 Ways Advisors Can Help Clients Improve Credit Scores

      Properly managing credit scores can help get new loans and save a lot of money in the process.
    Hot Definitions
    1. Financial Risk

      Financial risk is the possibility that shareholders will lose money when investing in a company if its cash flow fails to ...
    2. Enterprise Value (EV)

      Enterprise Value (EV) is a measure of a company's total value, often used as a more comprehensive alternative to equity market ...
    3. Relative Strength Index - RSI

      Relative Strength Indicator (RSI) is a technical momentum indicator that compares the magnitude of recent gains to recent ...
    4. Dividend

      A dividend is a distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders.
    5. Inventory Turnover

      Inventory turnover is a ratio showing how many times a company has sold and replaces inventory over a period.
    6. Watchlist

      A watchlist is list of securities being monitored for potential trading or investing opportunities.
    Trading Center