How I Apply the Piotroski Score to Pick Profitable Stocks
Are you looking for a tool that can help you identify fundamentally strong stocks? The Piotroski Score could be your answer! In this blog, we’ll break down the Piotroski Score, explain how to calculate it, and walk you through how to use it effectively to spot winning stocks. Also, how you can easily use this score and how you can easily use it in free with industry data in 5 minutes.
We’ll also dive deep into various industries where the Piotroski Score works best, with a special focus on Infrastructure Developers & Operators, Steel, Auto Ancillaries, Power Generation & Distribution, and Automobiles.
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What is the Piotroski Score?
The Piotroski Score is introduced by Joseph Piotroski in 2000 to evaluate the financial score of companies. It helps identify fundamentally strong stocks by analyzing their profitability, leverage, liquidity, and operational efficiency. The score ranges from 0 to 9, with 9 being the best possible score, indicating a company with strong financial health. The higher the score, the better the company’s financial health.
Piotroski’s idea was simple: to create a scoring system that could help investors spot undervalued stocks with the potential for high returns. The score is based on nine parameters that assess different aspects of a company’s performance.
How to Calculate the Piotroski Score?
The Piotroski Score is calculated by evaluating nine parameters, each of which gets a score of 1 if the company performs well and 0 if it doesn’t. The total score is the sum of these individual scores, so a maximum score would be 9 and the lowest would be 0.
Don’t just get confused or overwhelmed by the financial terms below we will try to evaluate them and try as much as possible to explain you in simpler terms with real life relatable examples. Let’s jump into it.
- Return on Assets (ROA)
Is the company turning its asset pile into real profits?
– A positive ROA earns 1 point. Think of it as the business squeezing juice from every rupee it owns. - Operating Cash Flow (OCF)
Show me the cash, not just accounting chatter.
– OCF in the green? That’s 1 point—proof the core engine is minting cash, not IOUs. - Change in ROA
Getting better or just coasting?
– If this year’s ROA beats last year’s, chalk up 1 point. Efficiency is moving in the right direction. - Accruals Test
Are profits backed by cash, or cooked in the books?
– When OCF tops net profit, grab 1 point. Cash > paper earnings = honest numbers. - Leverage Shift
Debt diet check.
– Lower debt‑to‑assets than last year? Score 1 point. Less leverage means a sturdier balance sheet. - Current Ratio
Can we pay tomorrow’s bills with today’s cash?
– If the current ratio has improved year‑on‑year, that’s 1 point. Liquidity cushion getting fluffier. - Gross Margin
Keeping more cream from every sale?
– Fatter margin than last year nets 1 point. Pricing power or cost control—either way, good news. - Asset Turnover
Sales horsepower per rupee of assets.
– Turnover revs higher than last year? Add 1 point. The plant, stores, or platform is working harder. - Share Dilution
No watering down the ownership, please.
– Same or fewer shares outstanding? Bingo—1 point. Your slice of the pie stays whole.
Total them up—0 to 9. A score of 7+ and you’ve found a fundamentally fit company worth a closer look.
Let’s bring these parameters to life using a simple lemonade stall example.
- ROA (Return on Assets):
Imagine you run a lemonade stall, and your total assets (lemons, sugar, cups, etc.) are ₹1,000. If your stall makes a profit of ₹200, your ROA is 20%. A positive ROA means you’re using your assets well.
- OFC (Operating Cash Flow):
You need ₹500 in cash to run your stall. If you generate ₹700 in cash from sales, this positive operating cash flow shows you’re making enough money to cover expenses.
- Change in ROA:
Last year, your stall had an ROA of 15%. If this year it’s 20%, you’ve improved efficiency, and you score 1.
- Accruals:
If your stall made ₹200 in profit, but you received ₹300 in cash (thanks to better collections), your accruals are positive, meaning earnings are backed by actual cash flow.
- Leverage (Change in Leverage):
If last year you took a loan of ₹200 to expand your stall and this year you’ve paid off ₹100 of it, you’ve reduced your leverage and score 1.
- Current Ratio (Liquidity):
If last year you had ₹500 in assets and ₹400 in liabilities, your current ratio was 1.25. This year, you have ₹600 in assets and ₹400 in liabilities, giving you a better ratio of 1.5.
- Gross Margin:
If last year you sold a glass of lemonade for ₹20 and it cost ₹5 to make, your gross margin was 75%. If you’ve reduced costs to ₹4 this year, your gross margin improves to 80%.
- Asset Turnover:
If last year you made ₹5,000 in sales with ₹1,000 in assets (turnover of 5), and this year you made ₹6,000 with the same assets, your asset turnover increases to 6.
- Share Dilution:
If you didn’t issue new shares or take on outside investors, you score 1. However, if you issued more shares, you score 0.
How to Use It in Screener?
Here Comes the practical part we have understood all the things about Piotroski score but how to use it we are not going to read the financial data of each potential company one by one here is the easy way. Using the Piotroski Score in your stock screener can make it easy to filter out companies that are fundamentally strong. My filter Here’s how to do it effectively:
- Set up a stock screen with the following filters:
Piotroski Score (F‑Score) ≥ 7
EV/EBITDA < 15
Return on Equity (ROE) > 10% (for value and profitability)
Market Capitalization > ₹500 crore
PEG ratio less then 1
- Screener Query:
Piotroski Score > 7 AND
EVEBITDA < 15 AND
Return over 3years > 10 AND
Market Capitalization > 500 AND
PEG Ratio < 13
Where to Get Data:
Screener.in: This is one of the most popular platforms where you can get ready Piotroski Scores for Indian companies. Use the above query to filter stocks that meet these criteria.
You can also use the below financial websites for the qualitative data.
MoneyControl: Another good source for company financials and ratios.
TradingView: Offers comprehensive financial data, including for Indian companies.
Yahoo Finance: Provides global financial data, including for Indian companies.
What Are the Limitations of the Piotroski Score and How to Adjust Them?
While the Piotroski Score is a powerful tool, it does have limitations:
- Not Industry-Specific: Piotroski doesn’t account for industry-specific challenges. For example, in the telecom or tech industry, the score may not be as effective. But for the ease we have mentioned the industries ahead in the next section of the blog. So you will be saved from any false positive results.
Adjustment: Supplement Piotroski with industry-specific metrics and qualitative analysis.
- Ignores Market Sentiment: The score is based purely on financials and doesn’t consider market sentiment or stock price movement. We would highly recommend to wait before making the financial decision if the market is highly volatile or some external factors like war and tariff implementation are going on.
Adjustment: Combine Piotroski with technical analysis to understand stock trends.
- Doesn’t Capture Short-Term Factors: Piotroski is a long-term indicator. It doesn’t capture short-term market swings or changes. So use it only for the value investing.
Adjustment: Use it as a complementary tool alongside other short-term indicators.
- Avoid the Micro- cap industries: As most of the micro-cap industries are under the 500 crore market capitalization and there financials are effected from their volatility so avoid those industries we have already covered it in our screener query so you don’t have to worry about it.
Industries Where the Piotroski Score Works Best
Select all the below industries in the filter option in the screener but there is small problem as we are creating this content for the non-trading professionals and definitely you don’t have screener premium version even I don’t have so you won’t be able to filter the industries. So when you pick any stock check if it is from the below mentioned industries.
- Infrastructure Developers & Operators: Asset-heavy with high capital expenditures, making Piotroski’s liquidity and leverage tests particularly useful.
- Steel: Highly cyclical and asset-intensive, where Piotroski’s operational efficiency tests (ROA, gross margin) are reliable.
- Auto Ancillaries: Operationally intensive with fluctuating costs—Piotroski’s liquidity and leverage tests are key.
- Power Generation & Distribution: Capital-intensive with large debts; Piotroski works well to measure leverage and liquidity.
- Automobiles: Cash flow, ROA, and leverage tests are critical to evaluate companies in this cyclical industry.
Adding a PEG Lens: Turning Piotroski “Healthy” Into “Healthy + Cheap + Growing”
We’ve already seen how the Piotroski F‑Score separates the financially fit from the flabby. But a stock can be squeaky‑clean and crazy‑expensive—or worse, a slow‑coach. Enter the PEG ratio (Price‑to‑Earnings divided by Growth). It’s my quick litmus test for “am I paying too much for the future?”
Metric | What it tells me |
Piotroski F‑Score (0‑9) | Balance‑sheet strength, cash‑flow honesty, improving efficiency. |
PEG Ratio (≤ 1 is the classic sweet spot) | How the P/E multiple stacks up against the company’s earnings‑growth rate. Lower PEG = more growth per rupee paid. |
How I Blend Them
- Stage‑One Filter – Piotroski ≥ 7
I only invite stocks with strong financial muscles to the party. - Stage‑Two Sieve – PEG < 1.2
Now I check: is this muscular stock also priced like a bargain athlete?- PEG < 1: “Growth on sale”—my favourite.
- PEG 1‑1.2: Still fair if the story is solid.
- PEG > 1.2: Pass, unless it’s a once‑in‑a‑generation compounder.
- Quick sanity check
- Are growth rates sustainable? I skim the last three years of earnings expansion and management guidance.
- Any red flags in valuation? I pair PEG with EV/EBITDA to catch odd accounting tricks.
Why This Combo Works
- Quality + Value + Growth in one shot:
- Piotroski nails the quality (healthy balance sheet, rising margins).
- PEG locks in value relative to growth (cheap for its speed).
- Avoids Value Traps: A low P/E alone can hide dying businesses. PEG demands growth to justify the multiple.
- Sidesteps Over‑Priced Darlings: High Piotroski tech darlings can still be nose‑bleed expensive; PEG reins them in.
Real‑Life Analogy
Think of buying a gym membership (the stock).
- Piotroski checks if the gym equipment is top‑notch, well‑maintained, and debt‑free—no hidden liabilities.
- PEG asks: “Is the membership fee reasonable for the facilities and classes you’ll actually use?”
A spotless gym that charges a fortune for basic services? Nope. A bargain gym that’s falling apart? Also nope. We want premium gear at a fair monthly fee—that sweet Piotroski 7+ with a PEG under 1.
Bottom line: When I screen for Piotroski 7+ and a PEG under 1.2, I’m not just buying a healthy company—I’m buying growth at a sensible price. That extra layer keeps my portfolio lean, mean, and primed for real‑world rupee gains.
Conclusion
The Piotroski Score is a handy tool when it comes to identifying stocks with strong fundamentals. While it’s not foolproof and has its limitations, it’s still a powerful way to filter out weak companies and focus on the ones that are financially healthy. But remember, no single score can do all the heavy lifting. When you combine it with other metrics like the PEG ratio, and dive deeper into industry‑specific analysis (whether you’re looking at infrastructure, steel, auto ancillaries, power generation, or automobiles), you can uncover the best investment opportunities.
So, whether you’re a beginner or a seasoned investor, using the Piotroski Score alongside a few other smart filters can give you the edge you need to make more informed, profitable decisions. Happy investing!