The 20 cheapest blue chip shares on the ASX today | Motley Fool Australia

The 20 cheapest blue chip shares on the ASX today | Motley Fool Australia: "The Piotroski F-Score was developed by a guy called Joseph Piotroski who is now associate professor of accounting at the Stanford University Graduate School of Business.

He developed a scoring system that essentially looks for companies that are profit-making, have improving margins, don’t employ any accounting tricks and have strengthening balance sheets. He uses nine scorecard variables, split into three groups:

Each test scores 1 point if the stock passes, or 0 otherwise.

Profitability

1. Net Income. Positive net income (from the most recent financial statement) scores 1
2. Operating cash flow. This is a measure of profitability. Positive values score 1
3. Return on assets. This is the net profit divided by the assets. If the return on assets has increased year-on-year, then score 1
4. Earnings quality. If the operating cash flow is greater than net income, score 1

Leverage &Liquidity (i.e. Capital Structure and Debt Service)

5. Decrease in liquidity. If the long term debt divided by the average assets is lower this year than the prior year, then score 1
6. Increase in liquidity. The Current Ratio is the current assets divided by the current liabilities. If this year’s figure is greater than last year, score 1
7. Absence of dilution. If no new shares were issued in most recent year, then score 1

Operating Efficiency

8. Gross Margin. Has the competitive position improved? If gross margin this year is greater than last year, then score 1
9. Asset Turnover. If asset turnover this year is greater than asset turnover last year, then score 1

What does all that mean?

It means that you can compare the health of companies on a like for like basis using the F-Score.

This score, out of 9, tells us what sort of financial shape the company is in. The higher the score, the better. Companies are scored as follows:

Good or high score = 7, 8, 9
Average score = 4, 5, 6
Bad or low score = 0, 1, 2, 3"



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