Piotroski Score - Explained
What is a Piotroski Score?
Written by Jason Gordon
Updated at October 22nd, 2023
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What is a Piotroski Score?
The Piotroski score refers to a discrete score between 0-9 reflecting nine criteria that are used to determine the strength of a firm's financial position.
How is the Piotroski Score Used?
The use of the Piotroski score is used to determine the best value stocks, with zero being the worst and nine the best.
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Who Created the Piotroski Score?
The term Piostroski score got the name from Chicago Accounting Professor Joseph Piotroski, who came up with the scale.
How is the Piotroski Score Calculated?
The score is based on specific aspects of the company's financial statements from the most recent period.
The Piotroski score is usually broken down into:
- profitability
- leverage
- liquidity
- source of funds
- operating efficiency
One point is given for every criterion met. When a company's score happens to hit 8 or 9, then it is considered to be a good value.
Criteria for Profitability
- Positive Net Income - one point
- Operating cash flow that is positive in the current year - one point
- Operations cash flow that is more than the net income - one point
- Return on assets that is positive in the current year - one point
Criteria for Liquidity, Leverage, and Source of Funds
- Long term debts lower ratio in the current period, compared to the past year (one point)
- Lack of dilution (No new shares were issued in the past year) (one point)
- Higher current ratio the current year compared to the last year (one point)
Criteria for Operating Efficiency
- A higher asset turnover ratio than that in the previous year gets one point
- A higher gross margin than that of last year gets one point as well