The Piotroski score was created by Joseph Piotroski, an accounting professor at the University of Chicago Booth School of Business. His score uses nine factors from a company's financial statements to assess the company's financial health and determine whether it is a good value stock.

The nine factors used to calculate the score are derived from accounting results over a number of years. Each factor will receive one point when met, with a maximum score of nine. A score of eight or nine

is considered evidence of a bargain stock and a score of zero or two indicates the stock may not be a good value.

To calculate the score, Piotroski first examines a company's working capital, or the net assets that remain after deducting liabilities. Specifically, he looks at the current assets in basis of comparison to its current liabilities. This is done to assess a company's long-term financial solvency and liquidity. Higher working capital often signals better financial health and a higher score, while lower working capital often results in a lower score.

Next, he looks at profitability. He checks to see if a company's returns are both positive and increasing compared to the previous year. Positive changes in the bottom line are considered a sign of health and will generally result in a higher score.

Third, he assesses the company's rate of asset turnover, or the ability of a company to generate revenue from its assets. He looks for increases in revenue relative to the amount of assets owned. Increasing asset turnover is considered a sign of efficient operation and leads to a higher score.

Fourth, he examines the company's margin of safety, or how much worse the company's operating performance would need to be in order for it to cease operating altogether. Companies with higher margins of safety tend to be more resilient to downturns and generally receive higher Piotroski scores.

Finally, he evaluates the company's cash flow. He looks for positive changes in cash flow relative to the previous year. A higher cash flow typically indicates a healthy company and leads to higher scores.

By combining all nine factors and assigning points based on the results, Piotroski produces a score between zero and nine. The Piotroski score is an attractive metric for evaluating value stocks, as it provides a comprehensive view of a company's overall financial health. Investors may use the score to decide whether a company should be invested in or not. In conclusion, the Piotroski score provides useful insight into the financial health of a company and is a useful tool for investors to consider when looking for value stocks.