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Fundamentals

Financial Scores

Financial Scores

Financial Scores Overview

The Financial Scores screener provides comprehensive quantitative analysis of companies using proven financial health and value metrics. This powerful tool combines multiple scoring methodologies to help investors identify financially strong companies and avoid potential value traps. Updated nightly, these scores offer objective, data-driven insights into company performance across key financial dimensions.

Core Scoring Metrics

Altman Z-Score

The Altman Z-Score is a credit-strength test that gauges a publicly traded manufacturing company's likelihood of bankruptcy. Developed by Edward Altman in 1968, this multi-factor model combines five financial ratios to predict the probability of financial distress within two years.

Score Interpretation:

  • Z-Score ≥ 3.0 - Safe zone: Low probability of bankruptcy
  • 1.8 < Z-Score < 3.0 - Grey zone: Some financial risk
  • Z-Score ≤ 1.8 - Distress zone: High probability of bankruptcy

The Z-Score formula incorporates working capital/total assets, retained earnings/total assets, EBIT/total assets, market value of equity/total liabilities, and sales/total assets ratios.

Piotroski Score

The Piotroski Score is a nine-point scale used to identify the best value stocks based on fundamental analysis. Created by accounting professor Joseph Piotroski, this scoring system evaluates profitability, leverage/liquidity, and operating efficiency to separate strong value plays from value traps.

Score Breakdown:

  • Score 8-9 - Excellent: Strong fundamentals across all areas
  • Score 6-7 - Good: Above-average fundamental strength
  • Score 4-5 - Average: Mixed fundamental signals
  • Score 0-3 - Poor: Weak fundamentals, potential value trap

The scoring system awards points for positive return on assets, positive operating cash flow, improving gross margins, decreasing debt ratios, and other fundamental improvements.

EBIT (Earnings Before Interest and Taxes)

EBIT represents a company's operating profitability by measuring earnings before the impact of financing decisions (interest) and tax strategies. This metric provides a clear view of how well a company's core business operations generate profits, making it ideal for comparing companies across different tax jurisdictions and capital structures.

Key Benefits:

  • Eliminates the impact of different capital structures between companies
  • Removes tax rate differences for better cross-company comparisons
  • Focuses on operational efficiency and business model strength
  • Useful for merger and acquisition analysis

Additional Financial Metrics

The Financial Scores screener includes comprehensive balance sheet and income statement data to provide complete context for the scoring metrics:

Balance Sheet Metrics:

  • Working Capital - Current assets minus current liabilities, measuring short-term liquidity
  • Total Assets - Company's total resources and investments
  • Retained Earnings - Accumulated profits reinvested in the business
  • Market Capitalization - Total market value of outstanding shares
  • Total Liabilities - Total debt and obligations

Income Statement Metrics:

  • Revenue - Total sales and operating income

Screening and Analysis Features

Interactive Data Grid:

Built on the advanced AG Grid platform, the Financial Scores screener provides professional-grade functionality for analyzing large datasets. Sort by any column, apply multiple filters, and customize your view to focus on the metrics most important to your investment strategy.

Key Features:

  • Multi-column sorting and filtering for complex analysis
  • State persistence - your column arrangements and filters are saved
  • CSV export functionality for offline analysis
  • Integration with stock research pages and news feeds
  • Real-time data updates with nightly refreshes

Strategic Applications

Value Investing

  • Use high Piotroski Scores (7-9) to identify quality value stocks
  • Combine with P/E and P/B ratios for comprehensive value analysis
  • Avoid value traps by filtering out low Piotroski Scores

Risk Assessment

  • Screen for Altman Z-Scores above 3.0 to minimize bankruptcy risk
  • Monitor existing holdings for deteriorating financial health
  • Identify companies in financial distress for potential short opportunities

Options Trading

  • Focus on financially strong companies (high Z-Score and Piotroski) for covered calls
  • Use EBIT trends to identify companies with improving operations
  • Avoid assignment risk on financially unstable companies

Portfolio Construction

  • Build a foundation of financially strong companies using combined scores
  • Diversify across sectors while maintaining quality standards
  • Regular portfolio health checks using updated scores

Best Practices

Combining Metrics

The most effective analysis combines multiple scores rather than relying on a single metric. Look for companies with both high Altman Z-Scores (>3.0) and strong Piotroski Scores (>6) for the highest-quality investments. Cross-reference with EBIT trends to ensure operational momentum.

Industry Context

Remember that financial scores can vary significantly by industry. Capital-intensive businesses may naturally have different score profiles than asset-light technology companies. Use industry-relative comparisons when possible.

Regular Monitoring

Financial conditions change over time. Set up regular reviews of your holdings using updated scores, and be prepared to adjust positions when fundamental deterioration occurs. The nightly updates ensure you're working with the latest available data.

The Financial Scores screener provides a quantitative foundation for investment decisions, helping you build portfolios focused on financial strength and avoid companies with deteriorating fundamentals. By combining proven academic research with modern data visualization, this tool transforms complex financial analysis into actionable investment insights.