“I show that the mean return earned by a high book-to-market investor can be increased by at least 7½% annually through the selection of financially strong high BM firms while the entire distribution of realized returns is shifted to the right. In the second and third sentences, Piotroski consolidates his hold on the reader's attention by revealing this strategy outperforms his benchmarks. Note the key words: high book-to-market (value stocks), accounting-based, fundamental analysis, strategy, portfolio, distribution of returns (i.e., better returns). “This paper examines whether a simple accounting-based fundamental analysis strategy, when applied to a broad portfolio of high book-to-market firms, can shift the distribution of returns earned by an investor.” In the first sentence of the article, he lets the reader know where he is going.
#Jim fink stocks full
He is now a full professor of accounting at the Stanford Graduate School of Business. 38, Supplement: Studies on Accounting Information and the Economics of the Firm)). In the year 2000, Joseph Piotroski was an associate professor of accounting at the University of Chicago’s Graduate School of Business and he published an article entitled, "Value Investing: The Use of Historical Financial Statement Information to Separate Winners from Losers" (Journal of Accounting Research (Vol. Source: Stanford University Graduate School of Business “Piotroski's approach essentially looks for companies that are profit-making, have improving margins, don't employ any accounting tricks and have strengthening balance sheets.” Generally, most investors will work either the top category or the bottom category. Alternatively, investors looking for shorting opportunities would start at the bottom with 0s and work their way up. Value investors looking for winners would start at the top with the 9s and work their way down. Generally, analysts put the scores in one of three categories: The result will be a score between 0 and 9. Change in asset turnover: Compare this year’s asset turnover (total sales for the year divided by total assets at the beginning of the year) to last year’s asset turnover ratio.įor each passing answer, the company is awarded one point (and no points on failed questions). Change in Gross Margin: Compare this year’s gross margin (gross profit divided by sales) to last year’s. Change in Shares in Issue: Compare the number of shares in issue this year, to the number in issue last year. Change in Working Capital (Liquidity): Compare this year’s current ratio (current assets divided by current liabilities) to last year’s current ratio. Change in Gearing or Leverage: Compare this year’s gearing (long-term debt divided by average total assets) to last year’s gearing. Quality of Earnings (Accrual): Compare Cash flow return on assets to return on assets Change in Return on Assets: Compare this year’s return on assets to last year’s return on assets. Cash Flow Return on Assets (CFROA): Net cash flow from operating activities (operating cash flow) divided by total assets at the beginning of the year. Return on Assets (ROA): Net income before extraordinary items for the year divided by total assets at the beginning of the year.
GuruFocus described the criteria on the F-Score pages: Those nine questions can be divided into three categories: profitability, funding and efficiency. Piotroski’s F-Score is based on the answers to nine questions taken from the financial statements of a company. We will examine the F-Score’s formula, history and at its application in screening and selecting value stocks. Here it is for one company (surrounded by a red ellipse): The GuruFocus system gives it a relatively prominent place on the Financial Strength section of the summary page for most stocks. Within this forest of tools, is there a place for the Piotroski F-Score? The practice of fundamental analysis has no shortage of metrics, procedures, ratios and filtering criteria.
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