Piotroski F-Score: Nine Simple Checks on a Company’s Financial Health

The Piotroski F-Score is one of those tools that looks almost too simple to be useful. Nine questions, each worth one point, all answered from two years of annual numbers. No forecasts, no target multiples, no management guidance. Yet it keeps turning up in stock screeners, and for a good reason: it forces you to look at whether a company’s basic health is getting better or worse, which is exactly the question a cheap-looking stock needs answered first.

In this guide we go through all nine checks, what each one is really asking, and then score two made-up Indian companies line by line so you can see where the points come from and where the score can mislead you.

What the Piotroski F-Score measures

The score is named after Joseph Piotroski, who developed it. According to Investopedia’s explainer on the Piotroski score, it ranges from 0 to 9, and a company earns one point for every criterion it meets. Higher is better. The nine checks fall into three buckets:

• Profitability (four points)
• Leverage, liquidity and source of funds (three points)
• Operating efficiency (two points)

Here is the thing to keep in mind from the start. Most of the checks compare this year with last year. The F-Score cares less about whether a company is great and more about whether it is moving in the right direction. A business with average margins that improved them earns the point. A business with fat margins that slipped does not.

The four profitability checks

1. Positive net income. Did the company make a profit in the latest year? If yes, one point. This is the bluntest test of the lot.

2. Positive return on assets (ROA). ROA is net profit divided by total assets. In the version Investopedia describes, the point goes to a company whose ROA is positive in the current year. In practice, if net income is positive, ROA will be positive too, so checks 1 and 2 usually move together.

3. Positive operating cash flow. Profit is an accounting number; cash from operations is what actually came in from running the business. One point if it is above zero in the current year. If you want a refresher on why the two numbers drift apart, our piece on operating cash flow vs net profit walks through it.

4. Operating cash flow greater than net income. Investopedia calls this a quality-of-earnings check. When cash from operations beats reported profit, the profit is less likely to be propped up by receivables piling up or other accounting accruals. One point if cash flow wins.

A company that reports a rising profit but keeps failing the cash-flow-over-profit test is telling you something. The money is being booked, but it isn’t arriving.

The three leverage and liquidity checks

5. Lower long-term debt than last year. One point if long-term borrowings fell compared with the previous year. Less leverage means less pressure from interest and repayments.

6. Higher current ratio than last year. The current ratio is current assets divided by current liabilities. A rising ratio means more short-term cushion, so one point if this year’s number beats last year’s.

7. No new shares issued in the last year. If the company didn’t issue fresh equity, it gets the point. The logic is about dilution and about where the money came from. A business that needs to keep raising equity may not be funding itself from operations. For Indian investors this covers QIPs, preferential allotments and rights issues. ESOP allotments also add shares, so check the share count rather than just the headlines.

The two operating efficiency checks

8. Higher gross margin than last year. Gross margin is revenue minus cost of goods sold, as a share of revenue. One point if it went up. A better gross margin can point to pricing power or cheaper inputs.

9. Higher asset turnover than last year. Asset turnover is revenue divided by total assets, so it tells you how many rupees of sales each rupee of assets produced. One point if it improved. See our asset turnover ratio guide for the detail.

How to read the final Piotroski F-Score

Investopedia’s reading is straightforward. A score of 8 or 9 is considered a good value signal. A score between 0 and 2 marks the stock as weak. Everything in between is a middle zone, and Investopedia’s own worked example treats a 6 as an average result.

Piotroski built the score for a specific hunting ground. Investopedia notes that he suggested starting with the cheapest 20% of the market by price-to-book value, and that his April 2000 paper reported a 23% annual return between 1976 and 1996 from buying high scorers and shorting low scorers. Two things about that number matter. It came from a long-short strategy on US stocks over a period that ended decades ago, and, as Investopedia itself says, past outcomes don’t guarantee future performance. Treat it as the reason the score became famous, not as a promise.

Worked example 1: a steady mid-sized manufacturer

Let’s score a hypothetical company. Call it Sahyadri Components, an auto parts maker. All figures below are invented for illustration and are in rupees crore.

Now the nine checks, one at a time:

1. Net income: ₹84 crore, positive. 1 point.
2. ROA: 84 ÷ 1,200 = 7.0%, positive. 1 point.
3. Operating cash flow: ₹131 crore, positive. 1 point.
4. Cash flow vs profit: 131 is more than 84, by ₹47 crore. 1 point.
5. Long-term debt: down from 310 to 260. 1 point.
6. Current ratio: FY25 was 380 ÷ 250 = 1.52. FY26 is 420 ÷ 300 = 1.40. It fell. 0 points.
7. New shares: the share count went from 5.0 crore to 5.4 crore, an 8% rise in shares outstanding, because the company did a QIP. 0 points.
8. Gross margin: FY25 was (1,380 − 966) ÷ 1,380 = 30.0%. FY26 is (1,500 − 1,035) ÷ 1,500 = 31.0%. Up. 1 point.
9. Asset turnover: FY25 was 1,380 ÷ 1,150 = 1.20. FY26 is 1,500 ÷ 1,200 = 1.25. Up. 1 point.

Total: 7 out of 9. Solidly in the middle-to-good zone, not quite in the 8-9 band.

Look at where the two points went, though. The current ratio dipped and the company raised equity. Those are related questions worth asking. Did the QIP money go into paying down long-term debt, which would explain the debt drop? Did current liabilities rise because of a short-term loan replacing a long-term one? The score won’t tell you. It just points at the lines to read.

Worked example 2: a struggling textile company

Our second hypothetical company, Konkan Textiles, is having a rough year. Again, invented figures in rupees crore.

1. Net income: a loss of ₹12 crore. 0 points.
2. ROA: −12 ÷ 600 = −2.0%. 0 points.
3. Operating cash flow: ₹18 crore, positive. 1 point.
4. Cash flow vs profit: 18 is more than −12. 1 point.
5. Long-term debt: up from 400 to 470. 0 points.
6. Current ratio: down from 1.10 to 0.90. 0 points.
7. New shares: share count went from 10 crore to 11 crore. 0 points.
8. Gross margin: down from 25% to 22%. 0 points.
9. Asset turnover: FY25 was 504 ÷ 560 = 0.90. FY26 is 480 ÷ 600 = 0.80. Down. 0 points.

Total: 2 out of 9. That lands in the weak zone.

Notice something odd. Both of Konkan’s points came from cash flow, and one of them is almost automatic. When a company makes a loss, any positive operating cash flow beats net income. So check 4 rewards a loss-maker for not burning cash, which is fair enough, but it is not the same as saying the earnings are high quality. This is why we like to read the nine answers, not just the total.

The total is a summary. The nine individual answers are the actual analysis.

Where the F-Score falls short

We have used the score enough to know its blind spots. A few worth keeping in mind:

• It looks backwards. Every input comes from past financial statements. Investopedia flags this too, saying the score should sit alongside broader market and economic analysis because it relies on historical data.
• It is binary. Debt falling by ₹1 crore earns the same point as debt halving. Gross margin rising by 0.1 percentage point counts as much as a big jump.
• Banks and NBFCs don’t fit well, in our view. Ideas like gross margin and current ratio don’t map neatly onto a lender’s balance sheet, so the score is better suited to manufacturing, consumer and services companies.
• One-off items can flip points. A big exceptional gain can push net income positive for a year. It makes sense to strip those out before you score.
• It says nothing about price. A 9 on an expensive stock is still an expensive stock. That’s why Piotroski paired it with low price-to-book to begin with.

Using the Piotroski F-Score on Indian stocks

The practical routine is simple. Pull the last two annual reports, or the annual numbers from the company’s results filings on the exchange. Use consolidated figures for both years so you are comparing like with like. Then go through the nine checks in order and write down a 1 or 0 next to each, along with the numbers you used.

A few India-specific habits help. Check the share count line in the shareholding pattern for QIPs, preferential issues and ESOP allotments, since any of these fails check 7. Watch for companies that reclassify long-term borrowings as current maturities, which can make long-term debt fall while total debt doesn’t. And for companies that changed their financial year or did a big acquisition, the year-on-year comparison may be distorted enough that the score isn’t worth much that year.

Used this way, the F-Score is a quick filter. It won’t pick stocks for you. What it does well is sort a long list of cheap-looking names into the ones whose fundamentals are improving and the ones that are cheap for a reason. Our broader guide on how to analyse quarterly results of a company picks up from there.

Disclaimer: This article is for educational purposes only and is not investment advice. Company names and figures in the examples are hypothetical. Please consult a SEBI-registered investment adviser before making investment decisions.