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Piotroski F-Score

What is Piotroski F-Score?

A 0 to 9 score of a company's financial strength based on nine tests of profitability, leverage, liquidity, and operating efficiency.

Overview

The Piotroski F-Score is a 0 to 9 score of a company's financial strength. It adds one point for each of nine simple tests of profitability, leverage and liquidity, and operating efficiency, so a higher score means more of the company's fundamentals are healthy or improving.

Joseph Piotroski, an accounting professor, introduced the score in a 2000 research paper on value investing. He applied it to stocks with high book-to-market ratios (cheap relative to book value) to separate companies whose finances were getting stronger from those that were cheap for good reason. Today it is used more broadly as a quick quality check on any company that reports full financial statements.

Unlike a single ratio, the F-Score looks at direction as well as level. Six of the nine tests compare the latest fiscal year with the year before, so the score rewards improvement rather than size.

Also Known As: F-Score, Piotroski Score

Formula

F-Score = Sum of Nine Tests (1 = Pass, 0 = Fail)

Compares the latest fiscal year with the prior fiscal year

Profitability (4 points):

1. Net income
Net income for the latest year is positive.
2. Operating cash flow
Cash flow from operating activities for the latest year is positive.
3. Change in ROA
Return on assets (net income ÷ total assets) is higher than in the prior year.
4. Accruals
Operating cash flow is greater than net income, a sign that reported earnings are backed by cash.

Leverage, Liquidity, and Source of Funds (3 points):

5. Long-term debt
Long-term debt is lower than or equal to the prior year.
6. Current ratio
The current ratio is higher than in the prior year.
7. Share issuance
Shares outstanding are lower than or equal to the prior year, meaning no net new shares were issued.

Operating Efficiency (2 points):

8. Gross margin
Gross margin is higher than in the prior year.
9. Asset turnover
The asset turnover ratio (revenue ÷ total assets) is higher than in the prior year.

How FinSpry calculates it: FinSpry uses annual (fiscal year) statements only. A score is produced when at least two years of balance sheets and income statements and at least one year of cash flow statements are available; otherwise no F-Score is shown. If a single test is missing an input, that test scores 0 rather than being skipped, so gaps in reported data can pull a score down. Comparisons are strict: an unchanged ROA, current ratio, gross margin, or asset turnover does not earn the point.

Piotroski's original paper scaled ROA and asset turnover by total assets at the start of the year and tested the change in long-term debt relative to average total assets. FinSpry uses year-end total assets for ROA and asset turnover, and compares the level of long-term debt directly.

Calculation Example

Consider a hypothetical company with two years of annual results (figures in millions, except shares):

Latest Fiscal Year:

Net Income$50
Operating Cash Flow$70
Total Assets$1,000
Long-Term Debt$200
Current Assets / Current Liabilities$300 / $200
Shares Outstanding100 million
Revenue / Gross Profit$800 / $320

Prior Fiscal Year:

Net Income$40
Total Assets$950
Long-Term Debt$220
Current Assets / Current Liabilities$270 / $200
Shares Outstanding98 million
Revenue / Gross Profit$760 / $300

Scoring the Nine Tests

  1. Net income $50 > 0: pass (1)
  2. Operating cash flow $70 > 0: pass (1)
  3. ROA $50 ÷ $1,000 = 5.00% vs $40 ÷ $950 = 4.21%: pass (1)
  4. Operating cash flow $70 > net income $50: pass (1)
  5. Long-term debt $200 ≤ $220: pass (1)
  6. Current ratio $300 ÷ $200 = 1.50 vs $270 ÷ $200 = 1.35: pass (1)
  7. Shares 100 million vs 98 million (shares were issued): fail (0)
  8. Gross margin $320 ÷ $800 = 40.00% vs $300 ÷ $760 = 39.47%: pass (1)
  9. Asset turnover $800 ÷ $1,000 = 0.80 vs $760 ÷ $950 = 0.80 (unchanged): fail (0)

= 7 / 9

Result: The company scores 7 out of 9. It is profitable, its earnings are backed by cash, and its leverage and liquidity improved. It lost one point for issuing shares and another because asset turnover stayed flat, which does not count as an improvement.

How to Interpret

The F-Score has no official cut-offs beyond the 0 to 9 range. Piotroski's paper grouped scores of 8 and 9 as high and 0 and 1 as low. In practice, many investors use the broader bands below.

Common Score Ranges:

Strong (7 to 9)

Most tests pass. The company is profitable, generates cash, and is improving on several fronts at once.

Moderate (4 to 6)

Mixed fundamentals. Check which tests failed; a failed share issuance test means something different from negative operating cash flow.

Weak (0 to 3)

Most tests fail. Profitability, cash generation, or balance sheet quality is weak or deteriorating.

Using the Score in Context:

  • Track the score over several years; a move from 4 to 7 says more than a single reading of 7
  • Combine it with a valuation measure such as the price-to-book ratio, as in Piotroski's original use
  • Pair it with the Altman Z-Score, which measures distress risk rather than year-over-year improvement

Limitations

  • Equal weights: A small rise in gross margin counts as much as turning cash flow positive.
  • Binary tests: A tiny improvement earns a full point, and a tiny decline loses it, so the score can swing on noise.
  • Annual data only: The score updates once a year when a new annual report is filed and does not reflect recent quarters.
  • Growth companies: Fast-growing firms that issue shares or borrow to expand can score poorly even when their prospects are strong.
  • Banks and insurers: Tests based on gross margin, current ratio, and asset turnover have little meaning for financial companies.
  • Accounting events: Acquisitions, divestitures, and one-time charges can flip several tests in a single year.

Related Financial Ratios

The F-Score is built from these underlying measures:

Return on Assets (ROA)

Net income relative to total assets; its level and change drive two of the nine tests.

Current Ratio

Current assets divided by current liabilities, the basis of the liquidity test.

Gross Margin

Gross profit as a share of revenue, the first operating efficiency test.

Asset Turnover Ratio

Revenue relative to total assets, the second operating efficiency test.

Altman Z-Score

A weighted ratio model that estimates bankruptcy risk, a complement to the F-Score.

Use This Metric

Filter stocks by Piotroski F-Score on the Financial Health tab of the stock screener to find companies with improving fundamentals.

Screen by Piotroski F-Score

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