# Piotroski F-Score: Rebuilding the Nine Financial Signals

The Piotroski F-Score combines nine binary profitability, financing, and operating-efficiency signals; reliable use requires reconstructing every input from comparable annual statements.

Canonical: https://wiki.fcontext.com/stocks/piotroski-f-score/
Fact checked: 2026-07-21

> For educational purposes only; not investment advice.

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## Direct answer

The **Piotroski F-Score** adds nine binary financial-statement signals. Each condition earns `1`; otherwise it earns `0`, producing a score from `0` to `9`. Joseph Piotroski developed the framework to distinguish financially strong from weak firms within a portfolio of high book-to-market companies, not as a universal credit rating or stand-alone valuation model.

The score asks whether current profitability and cash generation are positive, whether profitability and operating efficiency improved, and whether leverage, liquidity, and equity financing became more favorable. A high score describes the selected accounting signals for the measured period; it does not prove that a stock is cheap or that improvement will continue.

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## The nine signals

Use comparable annual statements and document the exact replication. Common implementations follow these conditions:

| Group | Signal earns 1 when |
| --- | --- |
| Profitability | `ROA > 0` |
| Profitability | `CFO > 0` |
| Profitability | Current `ROA > prior ROA` |
| Profitability | `CFO > net income` on a consistent asset-scaled basis |
| Leverage/liquidity | Long-term-debt ratio declined |
| Leverage/liquidity | Current ratio increased |
| Financing | No common equity was issued during the year |
| Efficiency | Gross margin increased |
| Efficiency | Asset turnover increased |

The original research defines variables precisely for its sample. Replications sometimes use beginning versus average assets, different long-term-debt fields, or share-count changes as a proxy for equity issuance. Those choices can change the score. Do not combine a provider's score with another provider's thresholds without first reconciling formulas.

Build inputs from the income statement, balance sheet, cash-flow statement, statement of stockholders' equity, and EPS/share footnotes. “No equity issuance” concerns financing activity; a changed diluted weighted-average share count can also reflect options, restricted stock, buybacks, conversions, acquisitions, or timing and is not an exact substitute.

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## Full scoring example

Assume the following consistent annual calculations:

| Signal | Prior year | Current year | Point |
| --- | ---: | ---: | ---: |
| Net income / average assets | -1.0% | 2.9% | 1 |
| CFO | $5m | $40m | 1 |
| Change in ROA | -1.0% | 2.9% | 1 |
| CFO versus net income | $5m vs -$10m | $40m vs $30m | 1 |
| Long-term debt / average assets | 40.0% | 33.3% | 1 |
| Current ratio | 1.50 | 1.70 | 1 |
| Common equity issuance | none | none | 1 |
| Gross margin | 35% | 38% | 1 |
| Asset turnover | 0.80 | 0.86 | 1 |

The total is `9`. The calculation says all nine selected signals passed; it does not explain why. The CFO increase may come from delayed supplier payments, debt could decline after an asset sale, margin could rise at a commodity peak, and turnover could improve because impaired assets reduced the denominator. Each point needs a financial-statement bridge.

Suppose instead the company issued shares, current ratio fell, and asset turnover declined. Those three points become `0`, producing `6`, even if the issuance funded a high-return acquisition. The decomposition is more informative than calling `6` simply “good” or “bad.”

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## Reconstruction and review checklist

- Download both annual filings and align fiscal year length, currency, continuing operations, and acquisition or disposition effects.
- Preserve raw values, formulas, denominators, comparison signs, and the reason for each binary result.
- Reconcile CFO to net income and inspect receivables, inventory, payables, deferred revenue, factoring, and supplier finance.
- Reconcile debt changes to borrowing, repayment, current reclassification, foreign exchange, leases, and business combinations.
- Review equity statements and financing cash flows rather than inferring issuance only from diluted EPS shares.
- Separate organic margin and turnover changes from acquisitions, divestitures, impairments, inflation, and commodity prices.
- Use annual periods for the classic framework; if using TTM, compare with a like TTM and label the modification.
- Treat banks, insurers, funds, and many REITs cautiously because gross margin, current ratio, and industrial leverage definitions may not fit.
- Pair the score with valuation, debt maturities, governance, business quality, and forward-looking risks.

Binary thresholds discard magnitude. ROA of `0.01%` and `20%` both earn one point; a tiny current-ratio improvement can offset serious deterioration elsewhere in the simple total. Mergers, accounting changes, restatements, and missing fields can also create false precision.

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## Common misconceptions

- “A score of 9 guarantees outperformance.” The original result was a historical portfolio finding under specified sample and implementation conditions.
- “A low score means imminent bankruptcy.” It records nine signals, not default probability.
- “Higher is always better for every industry.” Several inputs do not transfer cleanly to financial firms or special structures.
- “All websites calculate the same score.” Data mapping and denominator choices can differ.
- “No increase in diluted shares proves no equity issuance.” Weighted-average shares reflect many events and timing effects.
- “CFO above net income proves clean earnings.” Working-capital timing and classification can temporarily raise CFO.

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## Related topics

- [Earnings Quality](/stocks/earnings-quality/)
- [Operating Cash Flow](/stocks/operating-cash-flow/)
- [Gross Margin](/stocks/gross-margin/)

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## Authoritative sources

- [Value Investing: The Use of Historical Financial Statement Information to Separate Winners from Losers](https://doi.org/10.1111/1475-679X.00029) - Joseph D. Piotroski, *Journal of Accounting Research* (2000)
- [Beginners' Guide to Financial Statements](https://www.sec.gov/about/reports-publications/investorpubsbegfinstmtguide) - SEC
- [How to Read a 10-K](https://www.sec.gov/files/reada10k.pdf) - SEC