The Piotroski score is a discrete score between 0-9 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 is broken down into profitability; leverage, liquidity, and source of funds; and operating efficiency categories, as follows:
Positive Net Income (1 point)
Positive return on assets in the current year (1 point)
Positive operating cash flow in the current year (1 point)
Cash flow from operations being greater than net Income (quality of earnings) (1 point)
Leverage, Liquidity, and Source of Funds Criteria
Lower ratio of long term debt in the current period, compared to the previous year (decreased leverage) (1 point)
Higher current ratio this year compared to the previous year (more liquidity) (1 point)
No new shares were issued in the last year (lack of dilution) (1 point).
Operating Efficiency Criteria
A higher gross margin compared to the previous year (1 point)
A higher asset turnover ratio compared to the previous year (1 point)
If a company has a score of 8 or 9, it is considered a good value.