Piotroski analysis focuses on the likelihood of financial distress by examining trends or current states of nine accounting variables. I’ll examine Character Group (LSE:CCT) on both the annual figures and on the half year figures.
The first factor is profits
Character Group has not had an unprofitable year for at least ten years. It was profitable in the latest six-month period. A Piotroski point is awarded merely for showing a profit.
Does it produce positive cash flow from operations?
Total cash generated from operations was £13.9m for the year to August 2019 and £4.4m in the six months to end February. It gains a second Piotroski point on both the annual analysis and six-month analysis.
Has the return on capital employed figure improved?
For 2018 net income before extraordinary items divided by beginning of year total assets was £9.5m/£69.9m = 13.6%.
For the year to August 2019: £8.8m/£71.3m = 12.3%.
Profits were much lower in the last half year compared with the same period a year before.
The ROCE has declined for both the annual analysis and the six-month analysis, so Character does not gain a Piotroski point.
Is cash flow greater than profit?
Yes, for both the annual analysis and the six-month analysis, indicating that profit was not manufactured from accruals or other non-cash accounting, so another Piotroski point is gained.
Has the ratio of long-term debt to start-of-year total assets improved?
Character has no long-term debt and so it gains a Piotroski point in both annual analysis and six-month analysis.
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Prof. Glen Arnold
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