Last update on 2024-06-05

Cardinal Health (CAH) - Piotroski F-Score Analysis for Year 2023 (Final Score: 7/9)

Explore Cardinal Health (CAH) Piotroski F-Score analysis for 2023. Detailed assessment on profitability, liquidity, and operating efficiency with a final score of 7/9.

Short Analysis - Piotroski Score: 7

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

The Piotroski F-Score measures how financially strong a company is, using 9 criteria about profit, liquidity, and operating efficiency. Cardinal Health (CAH) scores 7 out of 9, indicating good financial health. They meet most profitability and operational criteria, such as positive net income ($261 million in 2023), positive operating cash flow ($2.839 billion in 2023), and improved return on assets and asset turnover. However, CAH's leverage and current ratio increased, indicating some liquidity concerns. The gross margin decreased slightly in 2023, showing a small decline in production profitability.

Insights for Value Investors Seeking Stable Income

Cardinal Health is a strong investment option based on its Piotroski F-Score of 7. Its consistent positive cash flow, improving asset use, and share buybacks highlight financial robustness. However, potential investors should monitor its increasing leverage and decreasing gross margin. Despite these concerns, CAH still demonstrates good potential for returns, making it worthwhile to consider this stock while keeping an eye on liquidity and profitability trends.

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

Profitability of Cardinal Health (CAH)

Company has a positive net income?

The net income criterion checks whether the company generated a positive net income in the fiscal year. Positive net income signifies profitability and is crucial for assessing overall financial health.

Cardinal Health (CAH) reported a net income of $261 million in 2023, which is positive. This is a favorable trend and adds 1 point to the Piotroski Score for the company. However, it's worth noting that, despite this positivity, the net income has seen significant fluctuations over the past 20 years, most notably with substantial losses in 2020 (-$3,696 million) and 2022 (-$933 million). These negative spikes could indicate underlying issues that warrant further investigation, despite the positive net income in the most recent year.

Company has a positive cash flow?

Cash Flow from Operations (CFO) indicates the cash inflows generated from normal business operations. It is essential for liquidity and solvency assessment.

In 2023, Cardinal Health (CAH) reported a positive CFO of $2.839 billion. Observing the historical trend, the CFO has consistently remained positive over the past 20 years, showcasing financial stability. The pattern varied, with peaks and troughs, reflecting responses to operational and market conditions, but overall maintained a robust performance. Notable peaks occurred in 2022 ($3.122 billion) and 2017 ($2.971 billion), underlining the company's ability to generate cash in diverse market scenarios. Therefore, Cardinal Health adds 1 point under this criterion.

Return on Assets (ROA) are growing?

Change in ROA: Compare the ROA of 0.006 in 2023 with the ROA of -0.0211 in 2022. If the ROA increased in 2023 add 1 point if not set it to 0.

For Cardinal Health (CAH), the Return on Assets (ROA) increased from -0.0211 in 2022 to 0.006 in 2023. This notable improvement, although still low compared to a healthy benchmark, marks a positive movement in the company’s use of its assets to generate earnings. The fact that the ROA transitioned from a negative to a positive ratio is significant, suggesting some recovery or improvement in operational efficiency. When compared against the industry median ROA, Cardinal Health still falls short, with the industry median being 0.2089 in 2023. The historical trend of operating cash flows from 2003-2023 shows variable performance, peaking in 2018 at $2.97 billion and standing at $2.839 billion in 2023. The improvement in ROA, coupled with robust operating cash flows, albeit not extraordinary, signals a gradual return to better asset utilization. However, reaching nearer the industry median would require stronger and more consistent performance. Therefore, CAH earns 1 point for improving its ROA in 2023.

Operating Cashflow are higher than Netincome?

The criterion compares operating cash flow to net income. It's important as higher operating cash flow than net income can indicate efficient cash generation.

In 2023, Cardinal Health (CAH) reported an operating cash flow of $2,839 million and a net income of $261 million. As the operating cash flow significantly surpasses the net income, it suggests that the company is efficiently generating cash from its operations beyond its accounting profits. This efficiency is a positive indicator, earning CAH 1 point in the Piotroski Score. Historically, CAH's operating cash flow has consistently been strong, often surpassing net income. For instance, in years like 2011 and 2012, cash flows were notably higher than net income, reflecting sustained operational efficiency.

Liquidity of Cardinal Health (CAH)

Leverage is declining?

Change in leverage is important as it indicates whether a company is increasing its liabilities relative to its equity.

Based on the provided data, the leverage for Cardinal Health (CAH) increased from 0.09 in 2022 to 0.1079 in 2023. This signifies an uptick in liabilities relative to equity, moving from a lower to a higher leverage ratio. Leverage ratios illustrate a firm's ability to manage debt. In this context, a decline to 0.09 in 2022 followed by an increase to 0.1079 in 2023 indicates that Cardinal Health has elevated its debt load.While this increase is relatively small, the rise in leverage still implies heightened risk. Historically, the leverage fluctuated with peaks at 0.2261 in 2017. Thus, no point is awarded for this criterion since the ratio has increased.

Current Ratio is growing?

Compare the company's current ratio from the latest fiscal year to the previous year and determine if it has increased or decreased. This ratio indicates the company's ability to pay its short-term obligations with its short-term assets.

In 2023, Cardinal Health's current ratio stands at 1.0038 compared to 1.0781 in 2022. This is a decrease, not an increase. The fall in current ratio suggests potential challenges in its liquidity position, meaning the company now has slightly lower short-term assets relative to its short-term liabilities than it did in the previous year. Over a 20-year span, CAH's current ratio has generally been lower than the industry median, indicating prolonged challenges in maintaining a robust current ratio. Therefore, no point is awarded for this criterion.

Number of shares not diluted?

Change in Shares Outstanding refers to the difference in the number of shares that the company has issued. This is important because reducing shares outstanding indicates share buybacks which can be a sign of a financially healthy company and an effort to return value to shareholders.

In 2023, Cardinal Health reported 261 million shares outstanding, a decrease from 279 million shares in 2022. This reduction in outstanding shares results in an addition of 1 point in our analysis. Thus, indicating a positive trend as it reflects the company's confidence and financial elasticity to repurchase its shares. Over the last 20 years, CAH has strategically reduced its share count from 453.6 million in 2003 to 261 million in 2023, marking a significant buyback strategy, particularly consistent post-2012 which signified drops nearly every year. This continued buyback efforts contribute positively to shareholder value by potentially increasing EPS (Earnings Per Share) and showcasing the company's prioritized fiscal strategies. Therefore, this trend is viewed favorably from an investor's perspective.

Operating of Cardinal Health (CAH)

Cross Margin is growing?

Gross margin is a critical financial metric as it indicates the percentage of revenue that exceeds the cost of goods sold (COGS). Essentially, it reflects how efficiently a company is producing its goods compared to its revenue generation. A high or increasing gross margin is a positive sign, indicating that the company is managing its production costs well relative to its sales figures. This criterion falls under the profitability analysis category of the Piotroski F-Score, which helps investors determine the financial health of a company.

In 2023, Cardinal Health's gross margin stands at 0.0336 compared to 0.0361 in 2022. This represents a slight decrease, indicating the company's profit from production relative to its revenue has experienced a small decline. In terms of the Piotroski F-Score, this criterion would yield 0 points, as there has not been an increase in gross margin year on year. Historically, Cardinal Health's gross margin has been on a downward trend, peaking at 0.0795 in 2003 and gradually decreasing over the last two decades. Interestingly, the industry median gross margin shows more volatility but generally maintains a higher range, with the 2023 figure at 0.2089. Factors contributing to Cardinal Health's lower gross margin compared to the industry might include differences in cost structures, operational efficiencies, and pricing strategies. Therefore, this trend reflects a challenge for Cardinal Health in improving its profitability relative to historical and industry standards.

Asset Turnover Ratio is growing?

Asset Turnover measures a firm's efficiency in using its assets to generate sales, indicating higher operational efficiency.

In 2023, Cardinal Health's Asset Turnover ratio improved to 4.697 from 4.1065 in 2022. This increase is notable, suggesting that the company has become more efficient in utilizing its assets to generate revenue. Historically, this figure has experienced both growth and reductions, but the recent uptick from 2022 to 2023 is a positive indicator. This trend warrants a 1-point addition as per Piotroski's criteria for performance evaluation, reflecting better asset usage to drive sales. Given this historical dataset, one can observe a broader pattern of generally rising asset turnover, strengthening Cardinal Health's operational profile.