As our previous article explained, fundamental data is used to assess a company’s value and for fundamental analysis of the asset. Here we will provide a couple of interesting scores that can help to evaluate a company’s stock. The main difference of this article in comparison with others about Altman Z-Score and Piotrosky score in that it’s practical, and provides exact fields from Financial reports with our Fundamental API, then it’s very fast and easy to calculate these scores with our data.
The Altman Z-score, in simple terms, estimates the likelihood of a company’s bankruptcy (see Wikipedia article for more details). It uses five financial ratios calculated from a company’s annual report and helps predict if the company’s (highly likely) going towards bankruptcy or not.
The formula for this score is:
Altman Z-score = 1.2A + 1.4B + 3.3C + 0.6D + 1.0E
A = working capital / total assets
B = retained earnings / total assets
C = earnings before interest and tax / total assets
D = market value of equity / total liabilities
E = sales / total assets
We either provide all of these parameters directly in our Fundamental data API feed, or they can be calculated from those that we provide.
Working capital equals totalCurrentAssets minus totalCurrentLiabilities (both part of the Balance Sheet section).
totalAssets is found in the Balance Sheet section.
retainedEarnings is found in the Balance Sheet section.
Earnings before interest and tax is ebit found in the Income Statement section.
Market value of equity is calculated by multiplying SharesOutstanding (under SharesStats section) by the current share price (from our EOD API feed).
totalLiab is found in the Balance Sheet section.Sales is totalRevenue found in the Income Statement section.
The Piotroski score is a discrete score between 0 and 9 that estimates the strength of a company’s financial position, where 0 is utterly weak and 9 is incredibly strong.
There are nine aspects or criteria which are estimated and then either assigned 1 point or 0 points. These nine aspects are divided into three categories, and data for all of them can be taken from our Fundamental data API feed directly – we either provide these parameters or they can be calculated from those that we provide.
- if netIncome (found in the Cash Flow section) is positive, it gains 1 point towards the score;
- if ReturnOnAssetsTTM (found in the Highlights section) is positive, it gains 1 point towards the score;
- if totalCashFromOperatingActivities (found in the Cash Flow section) is positive in the current year, it gains 1 point towards the score;
- if totalCashFromOperatingActivities is greater than netIncome, it gains 1 point towards the score.
- Leverage, Liquidity, and Source of Funds
- if longTermDebt of the current year is lower than of the previous year, it gains 1 point towards the score;
- if the current ratio of the current year – calculated as totalCurrentAssets divided by totalCurrentLiabilities (both part of the Balance Sheet section) – is higher than the current ratio of the past year, it gains 1 point towards the score;
- if there were no new shares issued in the last year, this lack of dilution gains 1 point towards the score.
- Operating Efficiency
- if the gross margin of the current year – calculated as ( totalRevenue – costOfRevenue ) divided by totalRevenue (both part of the Income Statement section) – is higher than that of the previous year, it gains 1 point towards the score;
- if the asset turnover ratio – calculated as net totalRevenue (taken at the end of the fiscal year, Income Statement section) divided by totalAssets (Balance Sheet section) – is higher than that of the previous year, it gains 1 point towards the score.
After estimating all the criteria from the list, all that is left is to sum the points up. 0-2 makes for a weak financial position, 8-9 for a strong one, that’s it.
Learn more about our Fundamental API.