Financial metric · Composite scores
Piotroski F-Score
Nine yes-or-no tests of a company's financial health, scored 0 to 9. It compares the latest two annual reports to see whether profitability, leverage and efficiency are improving or deteriorating.
How to calculate it
Profitability (4): positive return on assets; positive operating cash flow; ROA higher than last year; operating cash flow greater than net incomeLeverage and liquidity (3): lower long-term debt ratio; higher current ratio; no new shares issuedOperating efficiency (2): higher gross margin; higher asset turnoverF-Score = number of tests passed (1 point each)How to read it
- A high score means most signals are improving; a low score means most are deteriorating. It measures direction, not level.
- The individual tests are more useful than the total. See which tests the company failed.
Common pitfalls
- Joseph Piotroski designed it in 2000 for U.S. stocks with high book-to-market ratios (cheap on P/B), to separate improving value stocks from value traps. It was not designed as a universal rating.
- Each test is binary: a gross margin up 0.1 percentage points scores the same as one up 10 points.
- An excellent company already at peak margins and efficiency may score only in the middle because there is little room to improve further.
- Employee stock issuance can trip the 'no new shares' test for many U.S. technology companies. It does not apply to banks and insurers.
Where to find it in a 10-K
All inputs come from two consecutive 10-K filings: income statement, balance sheet and statement of cash flows.
U.S. vs. China reporting
The F-Score was built and tested on U.S. data, so it is closer to home here than in China. Applying it to A-shares requires care with China-specific items such as bank acceptance bills and government subsidies.