The Piotroski F-Score is a checklist that scores a company's financial health from 0 to 9. It was introduced by the accounting professor Joseph Piotroski in a 2000 paper. The company gets 1 point for each of nine yes-or-no checks taken from its financial statements, and 0 points when the answer is no. Four checks are about profitability (is net income positive, is operating cash flow positive, is return on assets higher than last year, does operating cash flow exceed net income). Three are about debt and liquidity (did long-term debt fall as a share of assets, did the current ratio rise, did the company avoid issuing new shares). Two are about efficiency (did gross margin rise, did asset turnover rise). A higher total means more checks passed.
Worked example
Company B had a net income of $80,000 on total assets of $1,000,000 this year, so its return on assets is 8%; last year it earned $60,000 on the same assets, which is 6%. Operating cash flow was $100,000, above the $80,000 of net income. The current ratio rose from 1.2 to 1.5, but long-term debt grew from $200,000 to $250,000 and the company issued new shares. Gross margin slipped from 32% to 30%, and asset turnover (sales divided by assets) fell from 1.3 to 1.2. Count the passes: 4 of 4 on profitability, 1 of 3 on debt and liquidity, 0 of 2 on efficiency. F-Score = 4 + 1 + 0 = 5 out of 9. The score does not say what to do, but it points to where to look: the new debt and shares, and the weaker margin.
Why it matters
The F-Score squeezes a lot of balance-sheet and income-statement reading into one number between 0 and 9, which makes it handy for sorting a long list of companies before you read any of them closely. Its strength is that every check is a plain yes or no taken from the company's own reports, so you can see exactly why a company scored what it did. Its limits matter just as much. It compares one year with the previous year, so a company can pass a check by improving from a very poor base. It says nothing about the price you would pay, and a ratio level or a score is a question to look into, not a verdict. Piotroski designed it for one specific group of stocks, those with a high book-to-market ratio (a low price compared with book value), so a score is not directly comparable across every kind of company. Treat it as a checklist that shows where to dig, and read the financial statements behind it.
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Frequently asked questions
Profitability (4): positive net income, positive operating cash flow, higher return on assets than last year, and operating cash flow above net income. Debt and liquidity (3): lower long-term debt relative to assets, a higher current ratio, and no new shares issued. Efficiency (2): a higher gross margin and a higher asset turnover. Each passed check is worth 1 point.
No. The score is a checklist of how many financial-health checks a company passed. It does not look at the share price or at what the company is worth, so a high score is a prompt to read the company's reports more closely, not a conclusion about the company.
All nine checks come from the company's annual report: the income statement, the balance sheet and the cash flow statement. You need two years side by side, because most checks compare this year with last year.
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