Piotroski Score: 9 Criteria for Analyzing Value Stocks
By Markets & Investing DeskUpdated Nov 10, 2026
Definition
The Piotroski F-score rates a company's financial strength from 0 to 9 using nine pass or fail tests on profitability, balance sheet strength and operating efficiency.
Key takeaways
- Four points come from profitability, three from leverage and liquidity, and two from operating efficiency.
- Six of the nine tests compare this year with last year, so a profitable firm can still score modestly.
- Scores of 8 or 9 are generally read as strong and 0 to 2 as weak, with no official cutoff.
- In a 1976 to 1996 backtest, buying high scorers and shorting low scorers returned about 23% a year.
The Piotroski score, also called the Piotroski F-score, is a 0 to 9 rating of a company’s financial strength built from nine yes-or-no tests on its financial statements. Each test the company passes adds one point. Accounting professor Joseph Piotroski introduced it in his 2000 paper “Value Investing: The Use of Historical Financial Statement Information to Separate Winners from Losers” (Journal of Accounting Research). A higher score means more signals of improving profitability, a stronger balance sheet and better efficiency compared with the prior year.
The nine Piotroski criteria
Profitability (4 points)
- Positive ROA: net income before extraordinary items, scaled by beginning-of-year total assets, is above zero.
- Positive operating cash flow: cash flow from operations is above zero.
- Improving ROA: this year’s ROA is higher than last year’s.
- Quality of earnings (accruals): operating cash flow exceeds net income (or, in ratio form, cash flow ROA exceeds ROA). Profits backed by cash are harder to inflate with accounting choices.
Many popular summaries list “positive net income” and “positive ROA” as separate points and drop the change in ROA. Because the two almost always move together, that version effectively double-counts one signal. When comparing scores from different sources, check which definition each uses.
Leverage, liquidity and source of funds (3 points)
- Lower leverage: long-term debt as a share of average total assets fell from the prior year.
- Higher liquidity: the current ratio (current assets divided by current liabilities) rose from the prior year.
- No dilution: the company issued no new common equity in the past year. A firm that needs outside equity may not be generating enough internal cash.
Operating efficiency (2 points)
- Higher gross margin: gross margin improved on the prior year.
- Higher asset turnover: sales divided by beginning total assets increased, meaning the company produced more revenue per dollar of assets.
Six of the nine tests are year-over-year comparisons. A company can be highly profitable and still score modestly if its margins, liquidity or leverage moved the wrong way.
Worked example
Hypothetical company, for illustration only. Company A’s latest fiscal year, compared with the prior year where relevant:
| Test | Data | Point |
|---|---|---|
| ROA | 5.2% | 1 |
| Operating cash flow | $410 million | 1 |
| Change in ROA | 5.2% vs. 4.6% | 1 |
| Cash flow vs. net income | $410M vs. $260M | 1 |
| Long-term debt / avg. assets | 0.31 vs. 0.28 | 0 |
| Current ratio | 1.8 vs. 1.5 | 1 |
| New shares issued | None | 1 |
| Gross margin | 33.0% vs. 34.1% | 0 |
| Asset turnover | 0.95 vs. 0.92 | 1 |
Company A scores 7 out of 9. Profitability is strong across all four tests. The two misses are informative: leverage crept up and gross margin slipped, which would be the first things to investigate in the annual report.
Interpreting the score
Scores of 8 or 9 are generally read as strong and 0 to 2 as weak, with 3 to 7 in between. In the original study, the high group scored 8 or 9 and the low group 0 or 1. There is no official cutoff, though some investors use 7 as a screening floor. A score of 6 means the company passed most tests but showed deterioration in a third of them, which calls for closer review, not a verdict either way.
The score was designed as a filter on top of valuation. Piotroski started with the highest book-to-market quintile, the cheapest fifth of stocks relative to their equity on the balance sheet. Many of those companies are cheap because they are in trouble, and the F-score aimed to pick out the ones whose fundamentals were actually recovering. In his 1976 to 1996 sample, buying high scorers and shorting low scorers produced about 23% a year. That is a historical backtest, not a forecast.
How investors use it
- Screening: many stock screeners filter by F-score, often combined with a low price-to-book or P/E ratio to recreate the value-plus-quality approach.
- Checking a value idea: a cheap stock with a score of 2 suggests the low price may reflect real decline.
- Tracking change: comparing a company’s score across years shows whether its fundamentals are improving or eroding.
Limitations
- Binary tests ignore magnitude. A gross margin rise from 30.0% to 30.1% earns the same point as a jump to 40%, and a tiny debt increase costs the same as a doubling.
- Backward-looking. Inputs come from annual statements that may be months old when filed. The score ignores industry conditions, management changes and the economy.
- Narrow evidence base. Results outside high book-to-market U.S. stocks over 1976 to 1996, or in later periods, are a separate question.
- Poor fit for some sectors. Banks and insurers do not report meaningful current ratios or gross margins, so several tests break down. Young growth companies that routinely issue shares are penalized by design.
- Accounting distortions. Acquisitions, write-downs and one-off items can flip several tests in a single year without reflecting the underlying business.
- No valuation input. A 9 on an expensive stock is not a value signal on its own.
Piotroski score vs. Altman Z-score
Both turn financial statements into a single number, which is why they are often confused. The Altman Z-score, developed by Edward Altman in 1968, estimates the likelihood of bankruptcy. It is a weighted formula combining five ratios (working capital, retained earnings, operating earnings and sales relative to total assets, plus market value of equity relative to liabilities). The output is a continuous number read against “safe,” “grey” and “distress” zones.
The Piotroski score is an unweighted count of pass or fail tests focused on whether financial strength is improving. A company can have a safe Z-score and a weak F-score: solvent but deteriorating. Another related measure is the Beneish M-score, which targets the probability of earnings manipulation rather than strength or distress.
FAQs
Can I calculate the Piotroski score myself?
Yes. You need two consecutive years of income statements, balance sheets and cash flow statements, plus beginning total assets to scale ROA and asset turnover. Apply the nine tests and add the points.
The Bottom Line
The F-score suits value investors who want to separate cheap stocks with recovering fundamentals from cheap stocks in real decline. It works best as a filter alongside a valuation measure such as price-to-book. Its binary tests ignore magnitude and break down for banks, insurers and young growth companies, so any score should prompt a closer look at the financial statements before a decision.
