Last update on 2024-06-05

Aon (AON) - Piotroski F-Score Analysis for Year 2023 (Final Score: 7/9)

Aon (AON) achieves a Piotroski F-Score of 7/9 for 2023, reflecting strong financial health and investing potential.

Short Analysis - Piotroski Score: 7

We're running Aon (AON) against the Piotroski 9-criteria scoring system to assess profitability, liquidity, and operating efficiency:

The Piotroski F-Score is a number between 0 to 9 used to evaluate the strength of a company's financial position based on 9 criteria related to profitability, liquidity, and operating efficiency. A score of 7 for Aon (AON) indicates strong financial health. The analysis showcases Aon's profitability with a positive net income and strong cash flow generation. Also, Aon's Operating Cash Flow is higher than Net Income, signaling solid earnings quality. However, the Return on Assets has slightly decreased. In terms of liquidity, Aon has increased leverage, which is a risk, but has managed to avoid share dilution and improve its Asset Turnover Ratio and Gross Margin.

Insights for Value Investors Seeking Stable Income

Based on Aon's Piotroski F-Score of 7, it indicates a strong and stable financial position, making it a potentially good investment. Key strengths include steady net income, robust cash flows, and efficient asset utilization. However, watch out for the increasing leverage and slight decline in Return on Assets. Overall, it seems worth considering for further evaluation given its solid financial metrics and potential for shareholder value creation.

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

Profitability of Aon (AON)

Company has a positive net income?

Net income is the total earnings of a company after all expenses and taxes have been deducted. A positive net income indicates profitability.

Aon's net income for 2023 stands at $2,564,000,000, which is indeed positive. Over the last 20 years, Aon's net income has demonstrated a general upward trend with some fluctuations. For instance, it reached a low of $546,000,000 in 2004 and a peak of $2,589,000,000 in 2022. Thus, given the positive net income for 2023, we can add 1 point for this criterion.

Company has a positive cash flow?

Cash flow from operations (CFO) reflects the amount of cash a company generates from its core business activities. It is essential for assessing a company's financial health.

For Aon (AON), the CFO for 2023 stands at $3.435 billion, indicating a positive trend. Historically, Aon's CFO has been generally strong over the past two decades. For instance, comparing 2003’s CFO of $1.312 billion to 2023, the company has demonstrated a significant and consistent growth trend in its operating cash flow. Such a pattern highlights AON's strong operational efficiency and financial management. Hence, this positive trend scores a '1' under Piotroski's criteria for CFO.

Return on Assets (ROA) are growing?

Return on Assets (ROA) measures how efficient a company's management is in generating earnings from their assets. It's crucial for comparing profitability.

Comparing Aon's ROA of 0.0769 in 2023 versus its previous ROA of 0.0801 in 2022, we observe a decline, marking a decrement rather than an increase. Therefore, no point is awarded here. Amidst this declining trend, it's essential to contextualise this against a broader industry backdrop. Over the last two decades, the operating cash flow for Aon has seen substantial fluctuations but generally positive movements, especially evident in recent leaps from $2,182 million in 2021 to $3,435 million in 2023. Such growth in cash flow should ideally bolster ROA, yet despite these favourable cash movements, the ROA for 2023 is veering below its historical and industry median norms. Highlighting the industry median ROA, figures hover around a significantly higher mark of 0.4489 in 2023, showcasing a large gap. This demands introspection into Aon's asset utilisation efficacy and calls for a strategic recalibration.

Operating Cashflow are higher than Netincome?

This criterion compares the Operating Cash Flow (OCF) to Net Income to assess the quality of a company's earnings. If OCF is higher than Net Income, it indicates that the company can back its earnings with actual cash flow, thereby adding 1 point in the Piotroski analysis.

In 2023, Aon's Operating Cash Flow was $3,435 million, significantly higher than its Net Income of $2,564 million. This indicates strong earnings quality for Aon as the company not only reported high net income but also backed it with a more substantial cash flow. The history of operational cash flow over the last 20 years portrays a consistent upward trend, significantly bolstered in recent years. Thus, for this criterion, Aon earns 1 point. This trend is highly favorable and showcases Aon’s ability to generate substantial cash flow relative to its net earnings, which is a strong indicator of financial robustness and efficiency.

Liquidity of Aon (AON)

Leverage is declining?

Change in leverage refers to the variation in a company's financial leverage ratio year over year. This metric is crucial to assess a firm's ability to meet its debt obligations and manage its financial risk.

Aon's leverage ratio has increased from 0.3225 in 2022 to 0.3135 in 2023, which shows an increment rather than a reduction. Historically, it's essential to note the trend where the leverage has generally seen a rising pattern over the past two decades. This increase indicates higher financial risk as the company is now more leveraged compared to the previous year. This does not contribute positively to the Piotroski score, resulting in a score of 0 for this criterion.

Current Ratio is growing?

Explain the criterion for Aon (AON) and why it is important to consider

The Current Ratio, usually defined as current assets divided by current liabilities, is a well-recognized liquidity measure that reflects a company’s capacity to cover its short-term obligations with its short-term assets. The significance of this metric is that it provides insight into the company's fundamental financial health. For Aon, a Current Ratio of 1.0024 implies that the company has nearly as many current liabilities as current assets. Overall, changes in the Current Ratio reveal trends in how the company's working capital management is evolving over time.

Number of shares not diluted?

Shares outstanding is a critical metric to understand dilution and share management of a company.

AON's outstanding shares decreased from 211,700,000 in 2022 to 203,500,000 in 2023, signifying a positive trend. Therefore, AON earns 1 point. Historically, AON has managed to reduce their shares outstanding progressively over the last 20 years, suggesting management's commitment to increasing shareholder value. For example, shares decreased from 317,800,000 in 2003 to 260,700,000 in 2017, and continued this trend to 203,500,000 in 2023. Such reductions can improve EPS and indicate potential buybacks.

Operating of Aon (AON)

Cross Margin is growing?

Explain the criterion for Aon (AON) and why it is important to consider

Gross Margin indicates the percentage of revenue remaining after deducting the cost of goods sold. The increase from 0.481 in 2022 to 0.484 in 2023 is slight but nonetheless positive, earning Aon 1 point in this criterion.

Asset Turnover Ratio is growing?

Asset Turnover, a key efficiency ratio, reflects a company’s ability to generate sales from its assets. An increasing ratio indicates better efficiency.

In 2023, Aon's Asset Turnover was 0.4013, up from 0.3862 in 2022. This increase is positive as it signifies improved efficiency in using assets to generate revenue. Historically, asset turnover has fluctuated, reaching its peak at 0.4102 in 2018. Despite slight dips, the overall trend towards improvement bodes well for Aon's operational efficiency. Considering these numbers, Aon earns 1 point for this criteria.