Last update on 2024-06-06

Archer-Daniels Midland (ADM) - Piotroski F-Score Analysis for Year 2023 (Final Score: 6/9)

Analyze Archer-Daniels Midland (ADM) through the Piotroski F-Score model in 2023. Final score: 6/9. Check ADM's financial health, profitability, and efficiency.

Short Analysis - Piotroski Score: 6

We're running Archer-Daniels Midland (ADM) against the Piotroski 9-criteria scoring system to assess profitability, liquidity, and operating efficiency:

The Piotroski F-Score analysis is made up of 9 criteria that help measure a company's financial strength. Archer-Daniels Midland (ADM) scored 6 out of 9, with positive marks in net income, cash flow, current ratio, gross margin, and share reduction. However, it did not score well in return on assets, leverage, and asset turnover. Despite some fluctuations and mixed results across the years, ADM's consistent profitability and recent positive cash flow demonstrate robust financial performance. But the increased leverage and decreased asset turnover indicate some financial risks and inefficiencies.

Insights for Value Investors Seeking Stable Income

Based on ADM's Piotroski F-Score of 6, it's a relatively strong stock with good financial health and some notable strengths. The steady net income and cash flow from operations provide a positive outlook. However, potential investors should be cautious of the increased leverage and decreased efficiency in asset use. It would be smart to further investigate these points before making an investment decision, but overall, ADM appears to be a worthwhile candidate for consideration.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Profitability of Archer-Daniels Midland (ADM)

Company has a positive net income?

The net income criterion assesses whether a company has been profitable over the period. A positive net income signifies financial health and profitability.

For 2023, Archer-Daniels Midland (ADM) reported a net income of $3,483,000,000, which is positive. Over the last 20 years, ADM has consistently maintained a positive net income, reflecting its strong financial performance. In fact, this 2023 net income ranks among the highest in its two-decade history, surpassed only by the 2022 net income of $4,340,000,000. Therefore, according to this criterion, ADM scores 1 point. This continual profitability is a favorable sign, indicating the company's effective management and market position.

Company has a positive cash flow?

The Cash Flow from Operations (CFO) measures the cash generated by a company's regular business activities.

For 2023, the CFO for Archer-Daniels Midland (ADM) stands at $4,460,000,000, indicating a positive cash flow. Historically, ADM's CFO has shown considerable fluctuations, with notable negatives in certain years like 2016 (-$4.78 billion) and 2020 (-$2.39 billion). The recent positive figure is encouraging, demonstrating robust cash generation from core operations. This positive trend adds 1 point to the Piotroski score.

Return on Assets (ROA) are growing?

Change in Return on Assets (ROA) focuses on the year-over-year improvement (or decline) in a company's profit relative to its total assets.

The ROA of Archer-Daniels Midland (ADM) was 0.0609 in 2023, down from 0.0749 in 2022. Therefore, the ROA did not increase in 2023, thus earning 0 points for this criterion. Over the past 20 years, ADM's ROA has fluctuated markedly, reflecting significant variability in operational efficiency. Although ADM's latest ROA is lower compared to its own historical performance, it also falls short when viewed against the industry median ROA trends, which highlights that ADM might be underperforming relative to its peers.

Operating Cashflow are higher than Netincome?

One of the criteria in Piotroski Analysis is that Operating Cash Flow should be higher than Net Income.

For Archer-Daniels Midland (ADM) in 2023, the operating cash flow is $4,460,000,000, which is indeed higher than the net income of $3,483,000,000. This trend is positive and adds 1 point to the Piotroski score. Over the last 20 years, the operating cash flow and net income have shown volatility, emphasizing the importance of this criterion. For instance, in recent years like 2021 and 2022, the operating cash flow was also significantly higher than net income, sustaining this positive trend. This consistency adds confidence in the financial robustness of ADM.

Liquidity of Archer-Daniels Midland (ADM)

Leverage is declining?

The change in leverage criterion evaluates the company's ability to reduce its debt relative to its equity. A decrease in leverage is a healthy sign.

The leverage ratio for Archer-Daniels Midland (ADM) was 0.1431 in 2022 and increased to 0.1682 in 2023. This indicates an increase in leverage, suggesting that ADM has taken on more debt relative to its equity. According to the Piotroski F-Score, an increase in leverage results in zero points for this criterion. Historically, ADM's leverage has seen variability, with a notable high of 0.3062 in 2007 and low leverage phases like 0.1222 in 2013. The current trend of increasing leverage could be a signal of increased financial risk.

Current Ratio is growing?

Explanation of analyzing a company's liquidity position using its current ratio value.

The Current Ratio for Archer-Daniels Midland (ADM) in 2023 stands at 1.5951 compared to 1.4638 in 2022. This increase signals improved liquidity and ability to cover short-term liabilities. Additionally, ADM's 2023 Current Ratio surpasses the 20-year industry median of 1.7945, underlining its strong 1.5951 ratio vs a 2023 industry median of 2.1167.

Number of shares not diluted?

The Change in Shares Outstanding criterion evaluates if the number of issued shares has decreased from one year to the next, indicating share buybacks or retirement.

For Archer-Daniels Midland (ADM), the Outstanding Shares decreased from 547,000,000 in 2022 to 541,000,000 in 2023, warranting an addition of 1 point. This trend is supportive of shareholder value as it may indicate a reduction in dilution effects and possibly implies stronger management confidence in the company's prospects. Historically, ADM's shares have seen a decline from a high of 676,000,000 in 2010 to the current figure, reflecting ongoing buyback activities over the years. Hence, the trend remains positive for shareholders.

Operating of Archer-Daniels Midland (ADM)

Cross Margin is growing?

Gross Margin is a measure of a company's financial health. It is important to consider because it indicates whether management can effectively control production costs.

For Archer-Daniels Midland (ADM), the gross margin increased from 0.0745 in 2022 to 0.08 in 2023. This positive trend returns ADM to one of its highest levels seen in the past two decades, indicating improved efficiency in cost management and potential profitability enhancement. This improvement is notable when compared to the company's historical gross margins, which hovered between 0.05 to 0.07 for most of the years, and brings ADM closer to bridging the gap with the industry median, significantly outperforming previous periods where the ratio was starkly lower, such as in 2012 (0.0412) compared to the industry median (0.1675). Therefore, we add 1 point for this criterion.

Asset Turnover Ratio is growing?

Asset turnover assesses how efficiently a company uses its assets to generate sales. It's crucial as it reflects operational capability.

Archer-Daniels Midland's Asset Turnover decreased from 1.7523 in 2022 to 1.6421 in 2023. This decline, quantified within the downward trend evident over a 20-year horizon (only surpassing 1.75 in three instances within the last decade), signals sub-optimal use of assets to generate revenue for 2023. Thus, this metric realistically earns a 0 on Piotroski’s scale, marking a performance decrement.