Last update on 2024-06-06

BorgWarner (BWA) - Piotroski F-Score Analysis for Year 2023 (Final Score: 6/9)

Analyze BorgWarner's 2023 financial strength with Piotroski F-Score. Key insights on profitability, liquidity, and operating efficiency with a score of 6/9.

Short Analysis - Piotroski Score: 6

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

BorgWarner (BWA) has a Piotroski F-Score of 6 out of 9, indicating a reasonably strong financial position. Key positives for BWA include a positive net income ($625 million) and cash flow from operations ($1,397 million) in 2023. The current ratio grew from 1.5621 in 2022 to 1.6504 in 2023, showing improved liquidity. The company has reduced its outstanding shares by 2,700,000, which is generally a positive sign. Additionally, the asset turnover ratio has increased, suggesting improved efficiency in asset usage. However, there are a few concerns: the Return on Assets (ROA) dropped from 0.0562 in 2022 to 0.0397 in 2023, indicating lower efficiency. The leverage ratio increased to 0.2642 in 2023, showing more reliance on debt. Gross margin also dipped from 0.1875 in 2022 to 0.1809 in 2023, revealing decreased profitability.

Insights for Value Investors Seeking Stable Income

Overall, BorgWarner (BWA) demonstrates a decent financial health with a Piotroski F-Score of 6, suggesting it has a fairly solid foundation but with a few areas needing improvement. Considering its strong cash flow, positive net income, improved liquidity, and increased asset turnover, it may be worth a closer look by investors. However, potential investors should remain mindful of the declining ROA, rising leverage, and shrinking gross margin, as these factors could impact future profitability and financial stability. Proceed with cautious optimism and keep an eye on their next financial reports for further validation.

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

Profitability of BorgWarner (BWA)

Company has a positive net income?

Evaluating whether the net income of BorgWarner (BWA) for 2023 is positive or negative is crucial as it reflects the company's profitability.

BorgWarner's net income for 2023 stands at $625,000,000, which is notably positive. The company's historical data over the last 20 years shows variability, with a notable loss in 2008 (-$35,600,000) likely due to economic downturns. Since 2009, however, the trend has been predominantly positive, demonstrating resilience and growth. Thus, for 2023, we add 1 point as per the Piotroski Analyses criteria. A positive net income is always a favorable indicator, suggesting effective cost management and strong revenue generation.

Company has a positive cash flow?

Positive cash flow from operations indicates that a company can generate sufficient cash to maintain and grow its operations.

In 2023, BorgWarner (BWA) reported a Cash Flow from Operations (CFO) of $1,397,000,000, which is positive. This consistent upward trend signifies robust financial health and operational efficiency. Notably, over the last two decades, BWA's CFO has generally shown an increasing trend, starting from $306,900,000 in 2003 and reaching its highest in 2023. Therefore, BWA adds 1 point for having a positive CFO, reflecting its strong capacity to generate cash internally without relying on external financing.

Return on Assets (ROA) are growing?

Change in ROA evaluates the variation in Return on Assets from one year to the next. A positive change signifies improved company efficiency.

The ROA for BorgWarner (BWA) decreased from 0.0562 in 2022 to 0.0397 in 2023. Therefore, this criterion does not add a point (0). This decline may indicate lower efficiency in using assets to generate earnings. For context, BorgWarner's ROA has generally been below the industry median return on assets, which was approximately 0.19-0.20 over the last 20 years. Hence, this trend not only deviates negatively year-over-year but also remains underwhelming compared to industry standards.

Operating Cashflow are higher than Netincome?

Operating Cash Flow higher than Net Income is critical in analyzing financial health because it indicates that a company's core operations are generating sufficient cash flow.

For BorgWarner (BWA) in 2023, the operating cash flow stood at $1,397 million, while the net income was $625 million. Clearly, the operating cash flow exceeds the net income. This indicates strong cash generation from core operations, underscoring BWA's robust cash flow generation. Over the past twenty years, BWA has consistently shown operating cash flows greater than net income in 15 out of these years. Therefore, for 2023, this metric scores 1 point, affirming the company's strong financial health through efficient cash generation.

Liquidity of BorgWarner (BWA)

Leverage is declining?

The Change in Leverage criterion assesses whether the company's leverage has decreased between two periods, indicating an improvement in debt management.

In 2022, BorgWarner (BWA) had a leverage ratio of 0.2486, which increased to 0.2642 in 2023. The increase in leverage suggests more reliance on debt in its capital structure, which is typically viewed unfavorably as it could imply higher financial risk. Assessing the data over the last 20 years, BWA's leverage experienced significant fluctuations, peaking around the 2021-2023 mark. Particularly, its leverage surged from 0.1725 in 2019 to 0.2439 in 2020 and has remained high since then. Comparatively, the current leverage ratio is above the 20-year average, denoting a persistent leveraging trend. This potentially indicates BWA's strategic decision to finance operations or growth through debt. Thus, for the Piotroski criterion, BWA does not gain a point here as its leverage has increased from 2022 to 2023.

Current Ratio is growing?

Change in Current Ratio: The current ratio measures a company's ability to pay its short-term obligations with its short-term assets. A higher ratio indicates better liquidity and financial health.

In 2023, BorgWarner (BWA) reported a current ratio of 1.6504, up from 1.5621 in 2022. This increase suggests improved liquidity over the year, which signifies a stronger short-term financial position. Historically, over the past 20 years, BWA's current ratio has shown fluctuation but has generally remained above the industry median, which in 2023 stood at 1.7153, slightly below BWA's ratio. Given that BWA's current ratio has increased and is closer to the industry median compared to the previous year, this trend is positive. Accordingly, 1 point is added in this criterion.

Number of shares not diluted?

This criterion compares any change in the number of shares outstanding between the current and previous year.

The number of outstanding shares for BorgWarner (BWA) was 235,500,000 in 2022 and decreased to 232,800,000 in 2023. This reduction implies a drop of 2,700,000 shares or approximately 1.15%. Historical data over the last 20 years showcases a trend where share counts can fluctuate due to various corporate actions like buybacks or issuance. In this context, the decrease in shares outstanding for 2023 can be considered a positive signal, reflecting a strategic move by the company to potentially enhance shareholder value. Hence, one point is awarded for this criterion.

Operating of BorgWarner (BWA)

Cross Margin is growing?

Change in Gross Margin represents the company's ability to maintain or improve its revenue after covering the cost of goods sold (COGS).

The Gross Margin for BorgWarner (BWA) in 2023 was 0.1809, down from 0.1875 in 2022. This decrease results in a score of 0 under this criterion. Over the last 20 years, BorgWarner's Gross Margin has fluctuated, peaking at 0.2164 in 2017, and has largely stayed below the industry median Gross Margin, which was 0.196 in 2023. This consistent underperformance compared to the industry highlights a potential area of concern for the company's profitability.

Asset Turnover Ratio is growing?

Asset turnover measures a firm's efficiency in using its assets to generate revenue. Higher ratios indicate improving efficiency.

BorgWarner's Asset Turnover has increased from 0.7528 in 2022 to 0.903 in 2023. This positive change in efficiency suggests that the company has been more effective in generating revenue from its assets. Historically, BorgWarner's asset turnover ratios over the last 20 years fluctuated with highs around 1.2 (e.g., 2011) and lows approaching 0.72 (2021). This increase from 2022 to 2023 indicates a favorable trend and contributes positively, with +1 point under the Piotroski F-Score criteria. It's essential to highlight that the current ratio of 0.903, while an improvement, still hasn't reached the highest historical levels. However, the upward trend is a promising development.