GLOSSARY // Fundamentals

Piotroski F-Score

The Piotroski F-Score grades a company 0 to 9, awarding one point for each fundamental test it passes across profitability, leverage, and efficiency. Accounting professor Joseph Piotroski published it in 2000 as a way to separate the survivors from the value traps inside a cheap-stock universe.

The nine tests, one point each. Profitability: (1) positive net income, (2) positive operating cash flow, (3) return on assets higher than last year, (4) operating cash flow greater than net income — the accruals check. Leverage and liquidity: (5) long-term debt ratio lower than last year, (6) current ratio higher than last year, (7) no new shares issued. Efficiency: (8) gross margin higher than last year, (9) asset turnover higher than last year.

Scores of 8-9 flag strengthening businesses; 0-2 flag deteriorating ones. In Piotroski's original study of high book-to-market stocks (1976-1996), buying high scorers improved returns by about 7.5 percentage points a year versus the value universe as a whole. Every input comes from standard financial statements, but the score is binary by design — it says nothing about valuation, only direction of fundamental health.

worked example

A cheap industrial posts positive net income (1) and positive operating cash flow (1), with cash flow above net income (1). ROA ticked up (1), long-term debt ratio fell (1), and no shares were issued (1). Gross margin improved (1). But the current ratio slipped (0) and asset turnover declined (0). F-Score: 7 of 9 — solid, with the two misses telling you exactly where to look next.

Related terms

Educational only — not financial advice. Definitions simplified for clarity; markets are messier than definitions.