The Health Check

How it works

Nine yes-or-no questions about a company's last two annual reports: is it profitable, is cash flow positive, is return on assets improving, is cash flow beating reported earnings, is debt falling, is the current ratio rising, has it avoided issuing stock, is gross margin widening, is asset turnover rising.

Each pass scores a point. The result is a count from zero to nine, not a weighting — Joseph Piotroski's point was that a handful of cheap accounting checks separates the financially healthy from the merely cheap, and that the separation shows up in later returns.

When it misleads

It reads annual filings, so it lags. A company that deteriorated this quarter still carries last year's score until the next report lands.

The score is an integer, which means enormous ties. Hundreds of companies share a 7, and the F-Score alone will not tell them apart. Read it next to price-to-book and the trend column.