# Piotroski F-Score, find winning and losing stocks

A short time ago we saw this blog a method to measure the chances of a company going bankrupt through the Altman Z-Score. We also saw the method of detecting accounting manipulation with the Beneish M-Score. On this occasion, I will present you a method to beat the market combining criteria of quality, financial strength and price through the Piotroski F-Score.

## What is the Piotroski F-Score?

The Piotroski F-Score is a formula that allows us to find companies to invest in that combine both business and financial strength and a good price.

This formula was created by the Stanford University Graduate School of Business Professor of Accounting Joseph D. Piotroski in an article called Value Investing: The Use of Historical Financial Statement Information to Separate Winners from Losers, which he wrote in 2.000 while working at the University of Chicago.

## Piotroski F-Score formula

Piotroski's formula is based on 9 criteria. The company scores 1 point if it exceeds each criterion. The maximum score is 9 points.

The criteria are as follows:

• Positive ROA in the current year.
• Positive cash flow in the current year.
• Higher ROA in the current year than in the previous year.
• The operating cash flow is higher than the net profit excluding extraordinary items.
• Increase in gross margin.
• Increase in asset turnover.
• Reduction in leverage (Debt / Assets).
• Increase in the current ratio (Current assets / Current liabilities).
• The company did not issue any new shares in the last year.

To use the formula, Piotroski first looks for stocks with a lower Price / Book ratio. Among these, select the actions that meet at least 8 of the nine requirements that we have seen.

## Results of the application of the Piotroski F-Score

The result of an investment portfolio that invests in companies with a high F-Score (8-9) and goes short in companies with a low F-Score (0-2) would be 23% per annum compounded between 1.976 and 1.996 according to the study carried out by Joseph Piotroski.

## Where to find stocks that meet the Piotroski criteria?

The Old School Value blog has a section calledPiotroski Score Stock Screen, a screener in which listed companies that meet Piotroski's criteria appear in its F-Score.

There is also a ranking of the Piotroski F-Scores on The Graham Investor blog.

## How and how much to use the F-Score?

My recommendation is to use one of the screeners that I showed you, be it Old School Value or The Graham Investor, to find investment ideas that you should analyze later.

What I do not recommend is using this method without complementing it with an own assessment of the companies in which we are going to invest, especially looking for competitive advantages through a qualitative analysis. In this way you can avoid falling into possible value traps that may have passed between the filters of the F-Score.