Last update on 2024-06-06

CME Group (CME) - Piotroski F-Score Analysis for Year 2023 (Final Score: 7/9)

CME Group achieves a Piotroski F-Score of 7/9 in 2023, showing strong profitability and cash flow. Analysis confirms financial health and operational efficiency.

Short Analysis - Piotroski Score: 7

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

The Piotroski F-Score evaluates a company's financial strength on a scale from 0 to 9 based on profitability, liquidity, and efficiency criteria. CME Group's analysis in 2023 reveals a Piotroski Score of 7, indicating a strong financial position. 1. **Profitability**: CME Group has a positive net income ($3.226 billion) and positive cash flow ($3.454 billion), with growing Return on Assets (ROA) and Operating Cash Flow higher than Net Income. These are positive indicators of robust earnings and financial health. 2. **Liquidity**: While CME's leverage increased (no points), its Current Ratio improved slightly (1.0158), adding a point. 3. **Efficiency**: Despite an increase in outstanding shares (no points), CME's Gross Margin went up and remains significantly higher than the industry median. Its Asset Turnover Ratio also increased, balancing past declines. Overall, CME Group performs well in profitability and operational efficiency but has some concerns in leverage and share issuance.

Insights for Value Investors Seeking Stable Income

Based on the Piotroski Score of 7, CME Group appears to be in good financial health with strong profitability and efficient operations, making it a favorable candidate for further investment consideration. However, investors should note the increasing leverage and rising number of shares as factors that could pose risks. It's advisable to conduct additional due diligence, examining the reasons behind rising leverage and stock issuance, to make an informed investment decision. Generally, CME Group seems like a potentially solid investment opportunity.

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

Profitability of CME Group (CME)

Company has a positive net income?

The criterion checks if the company has generated a positive net income for a given year, indicating profitability.

The net income for CME Group in 2023 is $3,226,200,000, which is positive. According to Piotroski's criteria, this results in 1 point for profitability. A review of historical net incomes reveals a fluctuating but largely upward trend, culminating in substantial profits in recent years. This positive net income trend is beneficial as it signifies financial health and robust earnings capability.

Company has a positive cash flow?

Cash Flow from Operations (CFO) indicates a company's ability to generate sufficient positive cash flow to maintain and grow its operations.

The Cash Flow from Operations (CFO) for CME Group (CME) in 2023 stands at $3,453,800,000. This figure is positive, which adds 1 point to the Piotroski score. Reviewing the historical data over the past 20 years, CME's CFO has shown consistent growth, from $191,149,000 in 2003 to this year's $3.45 billion. This robust and upward trend in CFO indicates strong operational efficiency and cash generation capacity, showcasing the company's solid financial health and promising future operations. Consequently, this trend is highly favorable for investors, emphasizing the company's growing profitability and sustainability.

Return on Assets (ROA) are growing?

Change in Return on Assets (ROA) evaluates the firm's efficiency in generating profits relative to its total assets compared to the previous year.

In 2023, CME Group's ROA is 0.0212, up from 0.0145 in 2022, indicating an improvement. The company's focus on leveraging its assets efficiently is evident. With a year-over-year increase of 68%, this upward trend merits a score of 1 point. Historically, CME Group has shown robust operating cash flows, a strong indicator of its financial health and operational efficiency. In comparison, the industry median ROA was substantially higher, hovering between 0.6043 and 0.7223 over the last 20 years, emphasizing that while CME is improving, it trails its peers considerably.

Operating Cashflow are higher than Netincome?

This criterion examines if the operating cash flow is higher than net income. It assesses if the company is effectively converting its net income into cash flow, indicating strong financial health.

For CME Group (CME) in 2023, the Operating Cash Flow (OCF) is $3,453,800,000, while the Net Income is $3,226,200,000. The OCF is indeed higher than the Net Income, adding 1 point for this criterion. This is a positive indicator as it suggests that CME Group is efficient in its cash generation from operations, highlighting strong underlying earnings quality. Historically, CME has shown a consistent increase in both OCF and Net Income over the past 20 years. This trend confirms the company's sustained financial robustness. The ability to maintain higher OCF compared to Net Income indicates prudent financial management and solid operational performance.

Liquidity of CME Group (CME)

Leverage is declining?

Change in leverage analyzes the shift in a company's financial leverage, assessing its capital structure and risk profile.

Between 2022 and 2023, CME Group's leverage increased from 0.0196 to 0.0264, resulting in no points for this criterion. Historical data over the last 20 years shows fluctuating leverage, peaking at 0.0616 in 2008 and significantly decreasing from 2019 to 2022, indicating periods of deleveraging. The increase in 2023 suggests higher risk, potentially due to increased debt or reduced equity.

Current Ratio is growing?

The Current Ratio measures a company's ability to pay off its short-term liabilities with its short-term assets. A higher Current Ratio indicates good short-term financial health.

In 2023, the Current Ratio of CME Group increased to 1.0158 from 1.0101 in 2022. This positive change, albeit slight, indicates an improvement in CME's short-term financial health. With the sustained increase over the years, this trend can be considered good. Compared to the industry median of 1.0552 in 2023, CME’s ratio is slightly lower but closer to a healthy range, suggesting a balanced approach to liquidity management. Hence, one point should be added for the increase in Current Ratio.

Number of shares not diluted?

The change in shares outstanding measures if a company has repurchased or issued additional stock. A decrease often signals management's confidence in the firm's future profitability.

In 2023, the Outstanding Shares for CME Group (CME) increased to 359,023,000 from 358,713,000 in 2022, indicating a growth of 310,000 shares. This finds alignment with the trend displayed over the last two decades, during which the total shares outstanding have generally trended upwards. Specifically, since 2003, the shares outstanding number has more than doubled, rising from 169,674,790 to 359,023,000. This increase suggests that the company is likely issuing more stock, either to raise capital for growth initiatives or due to options exercised by employees and executives. Based on the Piotroski analysis criterion for share issuance, this results in a score of 0 as the shares outstanding have not decreased in 2023.

Operating of CME Group (CME)

Cross Margin is growing?

Gross Margin measures the percentage of revenue that exceeds a company's cost of goods sold. It's a key indicator of financial health and profitability.

For CME Group, the Gross Margin has increased from 0.85 in 2022 to 0.8515 in 2023. This 0.17% increase is a favorable trend, albeit modest, as it indicates improved operational efficiency and profitability. Over the last 20 years, CME's Gross Margin has consistently been higher than the industry median, reflecting a strong competitive advantage. For instance, in 2023, the industry median Gross Margin is 0.6043, significantly lower than CME's. The company's ability to maintain high Gross Margins, above 0.8 for a long period, shows resilience and efficient cost management.

Asset Turnover Ratio is growing?

Asset Turnover is a measure of how efficiently a company uses its assets to generate revenue.

The Asset Turnover for CME Group has increased from 0.0271 in 2022 to 0.0367 in 2023, indicating improved efficiency in using its assets to generate revenue. With a historical perspective over the past 20 years, the ratio has generally trended downwards from a high of 0.2863 in 2005 to the recent uptick in 2023. Despite the long-term decline, the increase in 2023 is a positive signal, thus awarding a point for this criterion.