The Fundamental Health Trend Meter gives a visual representation of the trend in a company's accounts and its overall financial health. It is based on the Piotroski F-Score, a nine-criteria scoring system developed by financial academic, Joseph Piotroski in a famous research paper. Each of the nine points relate to the change in a ratio based on the company's accounts.
Companies with a score of 8 or 9 have been found as a group to outperform weak stocks by 7.5% annually over a 20 year period. The weakest stocks, scoring 2 or lower, were found by Piotroski to be five times more likely to fall into financial problems.
"A positive earnings trend is suggestive of an improvement in the firm’s underlying ability to generate positive future cash flows."
"I assume that an increase in leverage, a deterioration of liquidity, or the use of external financing is a bad signal about financial risk."
"The remaining two signals are designed to measure changes in the efficiency of the firm’s operations."
For further information on how the F-Score is calculated click here.
Find the top Ranked Piotroski Stocks click here.