The Piotroski score is a discrete score between zero and nine that reflects nine criteria used to determine the strength of a firm’s financial position. The Piotroski score is used to determine the best value stocks, with nine being the best and zero being the worst. For every criterion met (noted below), one point is awarded; otherwise, no points are awarded. The points are then added up to determine the best-value stocks.
Understanding the Piotroski Score
The Piotroski score is broken down into the following categories:
- Profitability
- Leverage, liquidity, and source of funds
- Operating efficiency
Profitability Criteria Include:
- Positive net income (1 point)
- Positive return on assets (ROA) in the current year (1 point)
- Positive operating cash flow in the current year (1 point)
- Cash flow from operations being greater than net Income (quality of earnings) (1 point)
Leverage, Liquidity, and Source of Funds Criteria Include:
- Lower amount of long-term debt in the current period, compared to the previous year (decreased leverage) (1 point)
- Higher current ratio this year compared to the previous year (more liquidity) (1 point)
- No new shares were issued in the last year (lack of dilution) (1 point).
Operating Efficiency Criteria Include:
- A higher gross margin compared to the previous year (1 point)
- A higher asset turnover ratio compared to the previous year (1 point)
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1. Ramky Infra Limited
Ramky Infrastructure Limited is a flagship company of the Ramky Group, specializing in infrastructure development and environmental management. Established in 1994 and headquartered in Hyderabad, it has successfully delivered projects across diverse sectors such as water, transportation, irrigation, industrial construction, power transmission, and real estate. With over 2,000 skilled professionals, Ramky Infra operates both domestically and internationally, focusing on construction, development, and public-private partnerships. Its expertise spans infrastructure development, including roads and wastewater, with a commitment to customer satisfaction and sustainable growth.
2. Eureka Forbes Limited
Eureka Forbes Limited is an Indian multinational headquartered in Mumbai, specializing in home appliances such as water purifiers, vacuum cleaners, air purifiers, and home security products. Founded in 1982 as a joint venture between Tata Group and Electrolux, the company underwent significant changes, with Tata Group selling its stake in 2001 and Electrolux divesting in 2005. In 2010, Eureka Forbes acquired a stake in Lux International, later becoming its majority shareholder. In 2022, Advent International acquired Shapoorji Pallonji Group’s stake, marking a new chapter for the company.
3. Schneider Electricals Limited
Schneider Electric Infrastructure Limited, incorporated in 2011, is engaged in the business of manufacturing, designing, building, and servicing technologically advanced products and systems for the electricity network. The product portfolio of the Co. includes Transformers, Power Transformers, Switchgears (Primary & Secondary Switchgears), Medium Voltage Switchgear, Protection Relays, Differential Relay, Electricity distribution management systems, a software suite for self-healing smart grid, e-House & smart cities applications.
4. KFin Technologies Limited
KFin Technologies Limited is a technology-driven financial services platform offering comprehensive solutions to asset managers, corporate issuers, and investors across India and global markets. It provides a range of investor services, including account setup, transactions, and compliance reporting for mutual funds, retirement schemes, and pension services in markets like Malaysia, the Philippines, and Hong Kong. Additionally, KFintech offers issuer solutions such as IPO processing, regulatory reporting, virtual voting, and e-AGM services. The company also supports global businesses with mortgage, legal, and accounting services.
Conclusion
The Piotroski score serves as a valuable tool for identifying strong value stocks through nine key criteria across profitability, leverage, and operating efficiency. Several small-cap companies, including Ramky Infra, Eureka Forbes, Schneider Electricals, and KFin Technologies, have achieved scores ranging between 8-9, indicating robust financial health. These companies, representing diverse sectors from infrastructure to financial services, demonstrate strong fundamentals and potential for value investors.
Written By: Dipangshu Kundu
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