GLEN ARNOLD INVESTMENTS
  • About
  • Newsletter
  • Books
    • My Books
    • Other Books
  • Blog
  • Portfolio
    • Buffett-style
    • Modified price earnings ratio
    • Net Current Asset Value
  • Resources
    • glossary of investment terms >
      • A - B
      • C
      • D - E
      • F - G
      • H - I - J - K
      • L - M - N
      • O - P
      • Q - R
      • S
      • T - U - V - W - Y - Z
    • TOP 10 TIPS FOR INVESTORS

J Smart - Piotroski analysis and conclusions

5/4/2021

0 Comments

 
​Joseph Piotroski published academic work showing nine accounting variables were useful in differentiating between those firms whose share returns are negatively affected by potential financial distress and those that are likely to outperform based on a good score regarding financial distress indicators.
The indicators fall under three headings: (1) Profitability; (2) Leverage, liquidity, and source of funds, and; (3) Operating efficiency
Profitability factors
If the firm is profitable and produces positive cash flow it has a capacity to generate funds internally.  A positive earnings trend suggests an improvement in the firm’s ability to generate positive future cash flows.
  1. Positive net income before extraordinary items for the year to end July 2020? J Smart (LSE:SMJ) is profitable (£3.6m) and has been for many years. A score of one is given.
  2. Positive cash flow from operations before investment in working capital? Yes (£4.9m), so we can add another one to the score.
  3. Improvement in return on assets employed in the business from the previous year?  Net profit/beginning of year total assets: 2019: £6.2m/£114m = 5.4%, 2020: £3.7m/£118m = 3.1%.  A reduction, therefore no point.
  4. Is cash flow greater than profit (so profits are not driven primarily by positive accruals, which may be ‘managed’)? Yes, so a third Piotroski point.
Leverage, liquidity, and source of funds
  1. Change in leverage over one year. Has the firm’s long-term debt reduced relative to its total assets?  At 31st July 2020 the company had net cash of £13m. Fourth Piotroski point.
  2. Has the firm’s current ratio (current assets divided by current liabilities) improved over the past year? 2019: £37.8m/£16.4m = 2.3,  2020: £32.7m/£13.2m = 2.5.  The current ratio has improved for J Smart. Fifth Piotroski point.
  3. Has the firm avoided raising fresh equity capital (e.g. rights issue or placing) in the last year? J Smart has not had to raise money this way.  This takes us to six points.
Operating efficiency
  1. Has the gross………………To read more subscribe to my premium newsletter Deep Value Shares – click here http://newsletters.advfn.com/deepvalueshares/subscribe-1
     
0 Comments



Leave a Reply.

    Picture

    Prof. Glen Arnold

    I'm a full-time investor running my portfolio from peaceful Leicestershire countryside. I also happen to be UK´s best selling investment book author and a Financial Times Best selling author.

    Originally, I wrote all my ideas out in full on this website. Now that ADVFN publish them they are entitled to display the full version for six months – you can see them here. Thus can I only post the first few paragraphs here for anything younger than six months.

    I write 2 to 3 newsletters per week - investing is about making the right decisions, not many decisions.

    Categories

    All
    Berkshire Hathaway (NYSE:BRK.A)
    Caffyns
    Capital And Counties
    Character Group
    Charlie Munger
    Connect Group
    Daejan-lsedjan
    Dewhurst-lsedwhta
    Highcroft
    Investment-ideas
    Investment Philosophy
    John Templeton
    J Smart
    McCarthy And Stone
    MS International
    Orchard Funding
    Samuel Heath
    Tandem
    TClarke (LSE:CTO)
    Town Centre Securities
    Wynnstay

    Archives

    December 2021
    November 2021
    October 2021
    September 2021
    August 2021
    July 2021
    June 2021
    May 2021
    April 2021
    March 2021
    February 2021
    January 2021
    December 2020
    November 2020
    October 2020
    September 2020
    August 2020
    July 2020
    June 2020
    May 2020
    April 2020
    March 2020
    February 2020

    RSS Feed

In the short-run, the market is a voting machine – reflecting a voter-registration test that requires only money, not intelligence or emotional stability – but in the long-run, the market is a weighing machine.  Benjamin Graham




  • About
  • Newsletter
  • Books
    • My Books
    • Other Books
  • Blog
  • Portfolio
    • Buffett-style
    • Modified price earnings ratio
    • Net Current Asset Value
  • Resources
    • glossary of investment terms >
      • A - B
      • C
      • D - E
      • F - G
      • H - I - J - K
      • L - M - N
      • O - P
      • Q - R
      • S
      • T - U - V - W - Y - Z
    • TOP 10 TIPS FOR INVESTORS