Piotroski Score

What Is the Piotroski Score?

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.

The Piotroski Score was named after Chicago Accounting Professor Joseph Piotroski, who devised the scale, according to specific aspects of company financial statements. Aspects are focused on the company’s accounting results in recent time periods (years). 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:

1. Profitability
2. Leverage, liquidity, and source of funds
3. Operating efficiency

Profitability criteria include:

Leverage, liquidity, and source of funds criteria include:

Operating efficiency criteria include:

If a company has a score of 8 or 9, it is considered a good value. If the score adds up to between 0-2 points, the stock is considered weak. Piotroski's April 2000 paper "Value Investing: The Use of Historical Financial Statement Information to Separate Winners from Losers," demonstrated that the Piotroski score method would have seen a 23% annual return between 1976 and 1996 if the expected winners were bought and expected losers shorted. As a starting point, Piotroski suggested investors begin with a sample of the bottom 20% of the market in terms of price-to-book value.

Of course, with any investment system, looking at past results doesn't mean it will work the same way in the future.

Scoring With the Piotrosky Method

As an example of the Piotrosky scoring method in action, note the following criteria calculations for Foot Locker (FL) in 2016. The profitability calculation was as follows:

The leverage calculation was as follows:

The efficiency calculation was as follows:

Foot Locker's total Piotrosky Score in 2016 was a full nine, which made it an excellent value proposition going into January 2017, according to the Piotrosky method.