Last update on 2024-06-07

Automatic Data Processing (ADP) - Piotroski F-Score Analysis for Year 2023 (Final Score: 7/9)

Piotroski F-Score analysis of ADP for 2023 with a final score of 7/9. Detailed insights into financial health, profitability, and efficiency.

Short Analysis - Piotroski Score: 7

We're running Automatic Data Processing (ADP) against the Piotroski 9-criteria scoring system to assess profitability, liquidity, and operating efficiency:

Automatic Data Processing (ADP) has achieved a Piotroski F-Score of 7 out of 9, indicating a strong financial position. The score reflects positive profitability metrics, such as positive net income and operating cash flow higher than net income. It also signifies improvements in return on assets and asset turnover ratio. Furthermore, ADP has not issued more shares, which is favorable for shareholders. However, ADP's current ratio has slightly decreased, and leverage has increased, suggesting some concerns regarding liquidity and financial risk.

Insights for Value Investors Seeking Stable Income

Based on the Piotroski F-Score analysis, ADP appears to be a strong and potentially undervalued investment option. The high score indicates solid profitability and efficient management of assets. Despite minor concerns over leverage and current ratio, the overall financial health portrayed by the score suggests it is worth considering for investment. Further detailed analysis and comparison with industry benchmarks might be useful before making a final decision.

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

Profitability of Automatic Data Processing (ADP)

Company has a positive net income?

Net income is a key financial metric that shows a company's profitability over a specific period. Positive net income indicates the company is earning profit after all expenses.

Automatic Data Processing (ADP) reported a net income of $3,412,000,000 in 2023, which is positive. This positively reflects ADP's profitability for the year. A trend analysis over the past 20 years shows, with the exception of a few years, a steady growth in net income from $1,018,150,000 in 2003 to $3,412,000,000 in 2023. This consistent upward trajectory underscores the company's robust financial health. Given the positive net income for 2023, ADP earns 1 point for this criterion.

Company has a positive cash flow?

Cash Flow from Operations (CFO) represents the cash generated by a company's regular operating activities are a critical measure of its liquidity.

In 2023, Automatic Data Processing (ADP) reported CFO of $4,207,600,000, which is positive. A positive CFO indicates that the company generates sufficient cash from its regular operations, which is a positive indicator for financial health. Compared to the last 20 years, this figure is the highest, demonstrating a significant upward trend. This suggests effective operational performance and efficiency over time, which is favorable for shareholders.

Return on Assets (ROA) are growing?

Change in Return on Assets (ROA) represents the variation in the company's ability to generate earnings from its assets over a specific period. It is an essential metric as it indicates the efficiency of a company's management in using its assets to generate profit.

The ROA for ADP increased from 0.0527 in 2022 to 0.0598 in 2023, which translates to an addition of 1 point in the Piotroski scoring. This improvement suggests enhanced efficiency in utilizing assets to generate earnings. The upward trend is evident even when placed within a longer timeframe, showing consistent improvement; in 2019 the ROA was 0.0378, gradually climbing to 0.0456 in 2021. Although ADP's current ROA of 0.0598 remains significantly below the industry median of 0.3223 in 2023, the consistent year-on-year improvement underscores efficient internal management practices, justifying the added point in the Piotroski analysis.

Operating Cashflow are higher than Netincome?

Operating Cash Flow exceeding Net Income is significant

In 2023, Automatic Data Processing (ADP) demonstrated a strong financial position with an Operating Cash Flow of $4.2076 billion surpassing its Net Income of $3.412 billion. This trend reflects healthy operational efficiency and a robust cash-generating ability, earning 1 point in the Piotroski Analysis. The historical data reveals a consistent rise in Operating Cash Flow, whereas Net Income has also shown improvement, signifying sound financial growth.

Liquidity of Automatic Data Processing (ADP)

Leverage is declining?

Compare the Leverage of 0.0532 in 2022 with the Leverage of 0.0655 in 2023 and check if Leverage increased or decreased. If the Leverage decreased in 2023 add 1 point if not set it to 0.

The Leverage has increased in 2023 from 0.0532 to 0.0655. This trend is considered negative for the Piotroski analysis since increasing leverage indicates higher financial risk and potentially greater vulnerability to economic downturns. Given the historical data, the leverage trend over the last 20 years shows a more substantial spike post-2016, notably in 2020. This points toward a gradual increase in financial leverage that might be tied to ADP’s evolution strategy, investment activities, or market conditions. As such, no point is awarded for the Change in Leverage criterion.

Current Ratio is growing?

The Current Ratio, calculated as current assets divided by current liabilities, is a critical measure of a company's ability to cover its short-term liabilities with its short-term assets. A higher ratio indicates better liquidity.

The Current Ratio for ADP has decreased slightly from 0.9936 in 2022 to 0.986 in 2023, which scores a 0 in the Piotroski scale. This drop suggests a very slight weakening in the company's liquidity position. Over the past 20 years, ADP's Current Ratio has fluctuated mostly above 1, except for recent years where it hovered just below. In 2023, ADP's Current Ratio remains below the industry median of 1.3723, indicating it is less liquid compared to industry peers. Despite the decrease, the margin is slender, reflecting a still reasonable liquidity position for the firm.

Number of shares not diluted?

Change in Shares Outstanding measures the change in the number of shares a company has issued. It's important because issuing more shares can dilute the ownership of existing shareholders, while buying back shares can increase shareholder value.

The Outstanding Shares decreased from 418,800,000 in 2022 to 413,700,000 in 2023, a reduction of 5,100,000 shares or about 1.2%. This decrease suggests that ADP might have conducted share buybacks, which generally indicates a positive trend for existing shareholders as it signals the company’s confidence in its financial stability. Over the past 20 years, ADP's outstanding shares have decreased from 605,917,000 in 2003 to 413,700,000 in 2023, reflecting a consistent trend in reducing share count.

Operating of Automatic Data Processing (ADP)

Cross Margin is growing?

Assessment of Gross Margin variation year over year.

For ADP, a significant consideration is the recognition of the Gross Margin, which serves as an indicator of operational efficiency and profitability. With a Gross Margin of 0.4474 in 2023, compared to 0.4265 in 2022, there has been an increase. This improvement is positive for ADP’s financial health, marking a point for improvement under Piotroski’s criteria.

Asset Turnover Ratio is growing?

Asset turnover is a financial ratio that measures the efficiency of a company's use of its assets in generating sales revenue.

In 2023, Automatic Data Processing (ADP) reported an Asset Turnover of 0.3159, an improvement from 2022's 0.295. This indicates that ADP has increased its efficiency in using its assets to generate sales. Over the last 20 years, the company's asset turnover has exhibited fluctuations, including highs of 0.3796 in 2014 and lows of 0.2881 in 2007. The recent increase is a positive trend, earning ADP a score of 1 on the Piotroski Scale for this criterion.