What is the Piotroski F-Score?
The Piotroski F-Score, named after accountant Joseph Piotroski, utilizes company financial statements and a binary ranking system to reflect the financial strength of a company.
In total there are nine (9) criteria (or conditions) that make up the Piotroski Scoring Scale and a point is awarded for each criteria that satisfies the relevant conditions. These points are then accumulated and the final number, or ranking, sits on a scale between 0 to 9, where 0 indicates a poorly operating company and 9 indicates a profitable, efficient company.
How is the Piotroski F-Score Used?
Due to the Piotroski F-Score’s effectiveness at finding companies that are reducing debt, decreasing the dilution of their shares, and increasing their efficiency, margins and overall profitability, many investors find it a helpful tool to screen for companies to invest in.
Additionally, some investors utilize the criteria on a quarterly basis to check the overall health of their portfolio by tracking the mean Piotroski F-Score and trimming equities below the mean while at the same time allocating funds to companies who score above it.
What are the Piotroski F-Score Categories?
There are three main categories that make up the Piotroski F-Score for any given company and the accompanying scoring conditions:
- Leverage, Liquidity, & Source of Funds; and
- Operating Efficiency.
Satisfying a condition outlined below increases the Piotroski F-Score for a company by a point, otherwise the company’s Piotroski F-Score remains unchanged.
Profitability & Leverage
- Positive Net Income in the Current Year
– Net Income > 0
- Positive Operating Cash Flow in the Current Year
– Operating Cash Flow > 0
- Positive Change in Return On Assets
– Current Year ROA > Previous Year ROA
- Accruals in the Current Year
– Operating Cash Flow > Net Income
Leverage, Liquidity and Source of Funds
- Reduction of Long-Term Debt
– Current Year Long-Term Debt < Previous Year Long-Term Debt
- Year over Year Increase in Current Ratio
– Current Year Current Ratio > Previous Year Current Ratio
- No Share Dilution
– Current Shares Outstanding <= Previous Year Shares Outstanding
- Profitability Improvements
– Current Year Gross Margin > Previous Year Gross Margin
- Asset Turnover
– Current Year Asset Turnover Ratio > Previous Year Asset Turnover Ratio
How to Calculate the Piotroski F-Score with Intrinio’s API
Utilizing Intrinio’s Data Tag System and Standardized Fundamentals API we can easily build out a functional pipeline in Python and quickly query the data required to calculate the Piotroski F-Score for any given company.
Intrinio Endpoint Used
Intrinio Data Tags Used
Step 1: Retrieve Current and Prior Year Data
We first need to construct a function that retrieves data for the current fiscal year period and the prior fiscal year period. The _historical_fundy_dataset function queries the current and prior year data for each data tag passed in as an argument, and returns a dataframe row with the combined current and prior period data.
Step 2: Aggregate all requisite data into a single Pandas DataFrame
The second function _piotroski_dataset iterates through the requisite data tags needed to perform our conditional checks and aggregates them into a final DataFrame for us to perform our Piotroski conditional calculations on.
Step 3: Utilize Piotroski Data to Calculate and Return Overall Piotroski F-Score
Finally, with our Piotroski Dataset complete — filled with the requisite fundamentals — the last function _piotroski_score uses the current and prior period financial values for a company to calculate and return the overall aggregated Piotroski F-Score.
Note: In order to prevent returning a “faulty” score, if a company does not have a full fundamental history (perhaps because it recently IPO’d) then you will be unable to calculate the Piotroski F-Score and the function will return None by default.
Where can you access reliable financial data?
If you are looking for access to reliable, accurate financial data to power your own financial platforms or models reach out to one of our data specialists today. Intrinio is a leading financial data provider that offers a variety of packages, and we’re always eager to assist and guide you in the right direction.
Image and article originally from intrinio.com. Read the original article here.