F-Score: Piotroski

The Piotroski score is a method adopted widely across the financial sector, which allows the investor to assess the fundamental position of the firm. The score ranges from 0-9, with 0 indicating either a recommendation to short the position on the stock or simply not to invest in the security. A 9 would indicate a favourable long-position opportunity. While AMSA would not solely base a fundamental analysis on this method, we believe that it is a rapid and straightforward way to start assessment and to decide whether further investigation would be worth it or not.

The Background

Piotroski is an American professor focusing on domains such as financial information and accounting cases. In October 2010, he was actively teaching as part of the University of Stanford Graduate School of Business.

The Piotroski method gained popularity due to a famous article which was written in 2000: “Value Investing: The Use of Historical Financial Statement Information to Separate the Winners from the Losers.” In this article, Piotroski elaborates on a method to buy stocks based on accounting principles, rather than investment principles. Two decades, his method has proven to warrant return on investment which is considerably higher than market average.

The Score

The score is based on nine individual questions, which indicate different aspects of the firm’s financial health. For every question the firm answers “yes” to, one point out of nine is awarded on the Piotroski scale. A healthy score indicates that the stock trades at low prices compared to its fundamentals (base of value investing). Thus, the share will be considered undervalued.

A score between 0 and 3 is considered low, 4-6 would be average and a score ranging between 7-9 would be classified as high.

The questions

The four first scores calculate the profitability of the company.

1)      The current net income compared to one of the previous year.

2)      A current positive cash flow.

3)      A greater ROA compared to the previous year’s ROA.

4)      An operating cash flow which is greater than the net income.

The next three scores evaluate the position in terms of the number of shares and the level of leverage.


5)      A long-term debt ratio which is inferior to last year’s.

6)      No emission of new shares.

7)      Financial ratios better than the previous year’s.


The two last factors of the Piotroski Score analyse the firm’s operational efficiency.


8)      A gross margin higher than the previous year’s.

9)      An asset turnover ratio better than the previous year’s.

Interpretation of the results 

By maintaining an objective point of view, and a healthy sense of scepticism, AMSA recommends investors to consider the following interpretations.

A positive net income compared to the previous year merely means that the company increased sales progressively by either selling more to current clients, increasing its market presence, or entering new geographic regions.

Improved financial ratios mean that asset capitalisation has increased due to improved cash flow and operating cash flows.

A healthy asset turnover ratio indicates that productivity and efficiency has increased. In turn, improved productivity indicates shorter inventories and better cash flow management.

Results obtained using the Pietroski Score

Evidence indicates that from 2000 until 2012, the strategy yielded a return of 125% against a Russell 2000 of 96%.