By Maksym Lytvynov, Founder of AlphaStocks | Last updated: 2026-09-23
Piotroski F-Score Explained: 9 Signals of Financial Health
Joseph Piotroski published his F-Score in 2000. The finding was striking: among high book-to-market (cheap) stocks, picking the ones that passed most of his nine signals raised the average annual return by at least 7.5% over his sample. Two decades later, the F-Score remains one of the most replicated results in accounting-based investing — nine binary yes-or-no questions that separate genuinely strong companies from the ones that just look cheap.
What the F-Score Measures
Each of the nine signals answers a simple yes-or-no question about the company's latest fiscal year, compared with the one before. Ratios are scaled by total assets at the start of the year, so a score needs three consecutive annual balance sheets. A “yes” earns 1 point; a “no” earns 0. The total score ranges from 0 (every signal negative) to 9 (every signal positive). The paper scored only companies with every input available, and so does AlphaStocks: one missing input means “insufficient data”, never a partial score.
The nine signals fall into three categories: profitability, leverage and liquidity, and operating efficiency.
Profitability (4 signals)
1. Positive Return on Assets
Is net income before extraordinary items, divided by total assets at the start of the year, positive? This is the most basic profitability check.
2. Positive Operating Cash Flow
Is cash flow from operations positive? A company can report accounting profits while burning cash. This signal ensures the business generates real cash, not just paper earnings.
3. Improving Return on Assets (ROA)
Is return on beginning assets higher this year than last year? Rising ROA means the company is getting more productive with the assets it controls.
4. Cash Flow Exceeds Net Income (Accruals)
Is operating cash flow greater than net income, both scaled by beginning assets? When cash flow lags behind reported profits, it often signals aggressive accounting. This signal penalizes companies where earnings quality is questionable.
Leverage and Liquidity (3 signals)
5. Declining Long-Term Debt
Has the ratio of long-term debt to average total assets decreased? (A company with no long-term debt in either year passes.) Companies reducing their debt burden are strengthening their balance sheet and lowering financial risk.
6. Improving Current Ratio
Is the current ratio (current assets / current liabilities) higher than last year? An improving current ratio indicates better short-term liquidity.
7. No Share Dilution
Did the company issue no common equity during the year, per its cash flow statement? Dilution reduces existing shareholders' ownership. Companies that fund operations through earnings rather than equity issuance demonstrate financial self-sufficiency. Issuance is read net of repurchases — a labelled adaptation, listed below.
Operating Efficiency (2 signals)
8. Improving Gross Margin
Is the gross margin higher than last year? Rising gross margins suggest the company is gaining pricing power or reducing production costs — both signs of competitive strength. A company that reports no gross profit (McDonald's is one) has this signal computed on operating margin instead — also a labelled adaptation.
9. Improving Asset Turnover
Is asset turnover (revenue / total assets at the start of the year) higher than last year? Increasing asset turnover means the company is generating more revenue per dollar of assets, a sign of improving operational efficiency.
How AlphaStocks Uses the Piotroski F-Score
In the AlphaStocks composite scoring system, the Piotroski F-Score carries 35% of the Quality axis in the general profile, and the Quality axis carries 40%of the composite. The 0–9 score enters the axis as F-Score ÷ 9 × 10.
We pair it with a Buffett-style quality assessment (65%of Quality) that applies the tests from Buffett's letters over ten years: returns on equity and tangible capital, owner earnings, debt, and moat signals in the numbers. The F-Score catches short-term financial deterioration; the Buffett model captures long-term competitive durability. Together, they provide a complete picture of business quality.
Quality = Piotroski F-Score × 0.35 + Buffett × 0.65 (general profile)The paper's signals assume a current ratio and a gross margin, so the F-Score does not rate banks, insurers, asset managers— it is left out of their Quality axis, not replaced by a different checklist. REITs are rated only when they present a classified balance sheet; most do not, and those are not applicable. See the Piotroski methodology page for every rule.
Where the model departs from the paper, it says so:
- Signal 8 — gross profit not reported — operating margin used (adaptation). Same intent as p. 9 (improving margins), one line further down the income statement; the stock page labels it.
- Signal 7 — equity offering read net of repurchases: filers tag employee-plan issuance under the same line as an offering, and a company buying back more stock than it issues is not raising external capital, the paper's reason for the signal (p. 9).
Interpreting Piotroski Scores
| Score Range | Status | Typical Action |
|---|---|---|
| 8–9 of 9 | Strong | High-quality candidate for further analysis |
| 6–7 of 9 | Attractive | Mostly healthy; check which signals failed |
| 2–5 of 9 | Neutral | Mixed signals; investigate which are failing |
| 0–1 of 9 | Reject | Multiple red flags; approach with caution |
| any of the nine inputs missing — no partial score (p. 11) | Insufficient data | Not every input is reported; no score |
8–9 is the paper's high F-Score group and 0–1 its low group (p. 12)
The cut at 6 inside the paper's unnamed middle is ours, not Piotroski's
On AlphaStocks, you can see each individual signal on any stock detail page. Registered users get full signal breakdowns showing exactly which of the 9 tests passed or failed. For the highest scores across the universe, see the Piotroski F-Score ranking.
Limitations of the F-Score
The Piotroski F-Score was designed for value stocks with low price-to-book ratios. Applied broadly across our 1,500-plus stock universe, some signals are less meaningful for asset-light businesses (technology, services) where book value is a poor proxy for economic value.
It is also entirely backward-looking. All nine signals reference the most recent annual filing compared to the prior year. A company entering a downturn may still show a high F-Score until its next annual report, before the deterioration appears in the numbers.
This is precisely why AlphaStocks does not rely on the F-Score alone. It is one input among many in a multi-model composite that includes valuation, momentum, and timing dimensions.
Frequently Asked Questions
What is a good Piotroski F-Score?
Piotroski's paper calls the top of the scale (the high F-Score group) strong and the bottom weak. AlphaStocks maps the 0–9 score to statuses: Strong: 8–9 of 9; Attractive: 6–7 of 9; Neutral: 2–5 of 9; Reject: 0–1 of 9; Insufficient data: any of the nine inputs missing — no partial score (p. 11).
How does AlphaStocks use the Piotroski F-Score?
It is one of two models on the Quality axis: 35% of Quality in the general profile, with the Buffett model at 65%; Quality is 40% of the composite. The nine signals are computed exactly as the paper defines them, and a company missing any input gets "insufficient data" rather than a partial score. It does not rate banks, insurers, asset managers.
Can the Piotroski F-Score predict stock returns?
Piotroski (2000) found that, among cheap (high book-to-market) stocks, choosing the high F-Score firms raised the average annual return by at least 7.5% over his 1976–1996 sample. That is a historical research result, not a forecast; AlphaStocks makes no return claim for the F-Score.
How often is the Piotroski F-Score updated?
Scores are recalculated daily, but the F-Score only changes when a company files a new annual report (10-K): every signal compares one fiscal year with the prior one, as the paper does, so quarterly filings do not move it.
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This article is for educational purposes only. AlphaStocks provides algorithm-generated research tools, not personalized investment advice. The Piotroski F-Score is one component of a multi-factor scoring model. Past performance does not guarantee future results. Always conduct your own due diligence and consult a qualified financial adviser before making investment decisions. Data sourced from SEC EDGAR filings.