Joseph D. Piotroski | 9 point scorecard

Piotroski published a seminal paper in 2002 demonstrating that stocks with low P/B when scored using a 9-point scale to test their financial strength, significantly outperform the market. We discuss the stock-picking strategy, its interpretation and application in stock screens.

Just curious to know if you can throw some light on Piotroski scores especially in terms of what are the scoring rules and weightages and what score is good and why etc. etc.

Hi ,
I came across the Joseph D. Piotroski Altman-Z score a few months back & have been using it ever since. The Altman - Z score is basically a tool for predicting bankruptcies & used quite widely by rating agencies & banks to analyze companies. The basic formula uses Balance sheet ,P&L & market cap items to arrive at a score for a company.The score(Z) can then be interpreted this way:

Z > 2.99 -aSafea Zone

1.8 < Z < 2.99 -aGreya Zone (watch out,do some digging) (punj lloyd got a score of 2.13)

Z < 1.80 -aDistressa Zone (Red Flag)

The Piotroski score on the other hand is a much newer & less popular measure developed by a prof who did some back testing on cigar butt kind of value stocks to try and improve the results of the low P/BV screen further by adding additional criteria. In short it tries to separate the good low p/bv stocks from the bad ones. A score of 8-9 is supposed to be excellent. it is a tough test with nine criteria & hence very few stocks manage to get scores of 8-9,but if you do find one there’s a good chance that you are on to something.

Please read the following articles,they may throw further light:


Thanks Siddharth for the explanation, very informative. I will go through the links u suggested to understand it better.

just ran into Piotroskys paper submitted.Value Investing: The Use of HistoricalFinancial Statement Informationto Separate Winners from Losers

I am keen to convert this into a regular stock screen.

Siddharth- I will try to come up with something after reading this; you can vet



I had gone through this paper when i found about the Piotroski score, interesting paper but maybe a little academic which gives a good overview of various studies done by different academics which all showed that low P/B stocks outperform the market in the long run. Then he goes on to describe the methodology & the actual details of the test. I think its a well thought out screen which gives one a shortcut to find out turnaround companies & also possibly cyclical companies coming out of the down cycle. But as i said this is a hard test to pass due to the 9 criteria. Especially this year it was difficult because very very few companies would have actually increased their earnings,margins,asset turns due to the recession. In such cases i think it makes sense to look at metrics from past 2-3 years rather than just 1 year.

Donald, i think this can be a really useful screen & i am eager to see the results, i haven’t come across any indian screener which is capable of running this, so really looking forward to it.


I will try…dunno, if this will be fully realisable in a screen. going to read the paper now:)




This is my understanding, from the paper.

Piotroski found that most stocks trading with an extremely low price-to-book-value were either neglected or financially troubled firms. Small, thinly traded stocks are rarely followed by analysts. The flow of information is limited for these stocks and can lead to mispriced stocks. Analysts typically ignore these stocks and tend to focus on stocks with general interest.

Financially distressed firms may be beaten down below their intrinsic value as investors await strong signs that a company has fixed its problems and the worst is behind. Poor prior performance often leads to overly pessimistic expectations of future performance. This pessimism translates into above market performance as companies outperform market expectations in subsequent quarters.

Piotroski found either situation can create buying opportunities, after checking on financial strength, especially when studying smaller cap stocks.

Piotroski developed a nine point scale that helps to identify stocks with solid and improving financials. Profitability, financial leverage, liquidity, and operating efficiency are examined using popular ratios and basic financial elements that are easy to use and interpret.

For this screen, a passing stock is required to have a perfect score of nine.

1). Set universe to low price-to-book ratio stocks:

P/B_LFY <1

2.The return on assets for the last fiscal year is positive:


3). Cash from operations for the last fiscal year is positive:


4). The return on assets ratio for the last fiscal year is greater than the return on assets ratio for the fiscal year two years ago :


5). Cash from operations for the last fiscal year is greater than income after taxes for the last fiscal year :


6). The long-term debt to assets ratio for the last fiscal year is less than the long-term debt to assets ratio for the fiscal year two years ago:


7.The current ratio for the last fiscal year is greater than the current ratio for the fiscal year two years ago:


8). The average shares outstanding for the last fiscal year is less than or equal to the average number of shares for the fiscal year two years ago


9). The gross margin for the last fiscal year is greater than the gross margin for the fiscal year two years ago:


10.The asset turnover for the last fiscal year is greater than the asset turnover for the fiscal year two years ago:


Siddharth, we should be more or less okay with above interpretation?

Also Found this below somewhere, which is more or less in line, except it is a more lenient apllication.

Piotroski Index Scans

Joseph Piotroski, a University of Chicago accounting professor, came up with anine point scoring mechanismfor stocks. It was designed to be applied to value investment in low P/B stocks, but it is useful for any set of stocks. The analysis is based on accounting fundamentals and consists of awarding one point for each of the following tests:

  • Positive net income,
  • Positive cash flow,
  • Earnings quality (cash flow greater than net income),
  • Decreasing debt (financial leverage decreasing),
  • Increasing working capital (current ratio increasing),
  • Improving productivity (asset turnover increasing),
  • Growing profitability (ROA increasing),
  • Not issuing stock (shares outstanding decreasing), and,
  • Competitive position improving (gross profit margin expanding).
    The points are summed and an integer score from 0 to 9 is determined.

My scans differ from the basic algorithm by adding an additional 1/2 point if a company increases shares by less than 3%. This helps to distinguish companies that issue a large number of shares for acquisition or financing purposes from those that issue a small number of shares for motivational and other purposes (e.g. stock option awards). Also, when data is not available from the sources used, the number of missed tests is noted. This often occurs for companies in sectors like banking or REITs where particular ratios are not followed because they are not deemed meaningful.

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Your interpretation is spot on,i have read a few articles were different people have made small changes to the criteria. So like i said if we are coming out of a recession i guess it makes sense to compare the LFY metric with the one 3 years back or maybe an average,the criteria remains the same but we can tweak it as it suits us. Is this realizable as a screen is the question? There are a couple of screens based on this in the US i believe.



Your hunch was right. This is a unique screen.It turns up many new names. Although there is a fair bit of pretty ordinary companies that comes in, as well. But 20 isnt a big list to have a quick look at and filter.

Have a look at the new screen Piotroski low P/B stock screen.

I did that, and I liked what I quickly noted of Aarti Industries, Nagpur Power and Industries and even Virat Industries, even though its a very small company.Guys -enjoy the list. You may like a few others, and might know of genuine turnaround stories going cheap! Please explore and share what you know/come across.

Siddharth - there are other ways to remove the trash from this screen. These are called secondary criteria - they are meant to weed out exactly the misfits that we don’t want to turn up here. We can always do that. Right now, I have maintained the original Piotrosky - tweaks can come later.



Hi Donald,

I have two minor observations going by your text, i haven’t bothered to read the original material.

5). Cash from operations for the last fiscal year is greater than income after taxes for the last fiscal year :


the income figure should be interpreted as revenue or profit?

6). The long-term debt to assets ratio for the last fiscal year is less than the long-term debt to assets ratio for the fiscal year two years ago:


I think “TDebt_PY1/TAssts_PY2” should be TDebt_PY1/TAssts_PY1, however the screen has the direct ratio Debt2Assts_LFY<Debt2Assts_PY1

#5 may impact the results if the formula is changed.



Hi Binu,

Sorry I had missed this completely…travelling last 2 weeks!

1). In the Piotrosky paper, Income after taxes -refers to (our) Profits after Taxes. What we call as Income is referred to as (their) Revenues! (you will see this in US GAAP statements).

2.TDebt_PY1/TAssts_PY2 was a typo…have corrected it. Thanks. for the screener we had defined a Debt2Assets ratio as Total Debt/Total Assets




is it worth perhaps first as an academic exercise to build an inverse of this screen - to identify good short candidates?


Try it…if it works for you. We have no expertise in Shorting:)

Can you give a link to this screen?