Last update on 2024-06-05

Cognizant Technology Solutions (CTSH) - Piotroski F-Score Analysis for Year 2023 (Final Score: 6/9)

Analyzing Cognizant Technology Solutions (CTSH) using the Piotroski F-Score for 2023 reveals insights on profitability, liquidity, and efficiency with a score of 6/9.

Short Analysis - Piotroski Score: 6

We're running Cognizant Technology Solutions (CTSH) against the Piotroski 9-criteria scoring system to assess profitability, liquidity, and operating efficiency:

Cognizant Technology Solutions (CTSH) has been evaluated based on the Piotroski F-Score, which assesses financial health by examining profitability, liquidity, and operating efficiency. CTSH achieved a Piotroski Score of 6 out of 9, indicating a solid but not perfect financial standing. The company demonstrated strong profitability with a positive net income of $2.126 billion and positive cash flow from operations ($2.33 billion). However, its Return on Assets (ROA) declined from the previous year (0.117 vs 0.1283), reflecting some inefficiencies. Operating cash flow exceeding net income scored positively, signaling efficient cash generation. Liquidity is enhanced by declining leverage (19.4% reduction) and an improved current ratio (2.252). The number of shares outstanding also decreased, indicating favorable shareholder activities. However, the company struggled with Gross Margin (decreased from 0.3593 to 0.3456) and Asset Turnover Ratio (dropped from 1.0883 to 1.0652), showing some operational challenges. Analytical insights recommend a balanced view given CTSH's mixed performance across different criteria.

Insights for Value Investors Seeking Stable Income

Based on its Piotroski F-Score of 6, Cognizant Technology Solutions (CTSH) appears to be generally sound financially, attracting potential investors interested in solid, stable returns. However, there are areas of concern, such as decreased Return on Assets, Gross Margin, and Asset Turnover Ratio, which indicate operational inefficiencies that may need addressing. For those considering investing in CTSH, a detailed analysis of these problematic areas will be essential. Given the positive trends in profitability, cash flow, and liquidity, CTSH offers good potential but warrants cautious optimism. Further research and monitoring would be prudent steps before making an investment decision.

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

Profitability of Cognizant Technology Solutions (CTSH)

Company has a positive net income?

Net income refers to a company's total earnings, reflecting the company's profitability after all expenses and taxes have been deducted.

Cognizant Technology Solutions (CTSH) achieved a positive net income of $2,126,000,000. Over the past 20 years, the company has consistently generated positive net income, indicating robust financial health. The steady increase in net income demonstrates sustained profitability, which signals effective management and a resilient business model. This trend is overwhelmingly positive and merits 1 point in the Piotroski analysis. The uptick highlights CTSH's strong financial foundation and ability to generate profit consistently.

Company has a positive cash flow?

Cash Flow from Operations (CFO) indicates whether a company is able to generate sufficient positive cash flow to maintain and grow its operations. A positive CFO is essential for long-term solvency.

For Cognizant Technology Solutions (CTSH) in 2023, the CFO stands at $2.33 billion, which is distinctly positive. Notably, the last two decades have consistently demonstrated positive operating cash flows, escalating from just $79.86 million in 2003 to its peak of $3.29 billion in 2020. The positive trend over the years, although showing some fluctuations, demonstrates strong operational efficiency and effective business strategies. This consistent ability to generate positive cash flow augments shareholder value and enhances the company's capability to reinvest, pay dividends, and withstand economic downturns, establishing it as a robust player in its industry. Therefore, CTSH earns 1 point under the Piotroski criteria for positive CFO in 2023.

Return on Assets (ROA) are growing?

Change in Return on Assets (ROA): Compare the ROA of one year to the previous year for growth. Increasing ROA signals stronger profitability.

The ROA for Cognizant Technology Solutions (CTSH) in 2023 is 0.117, which is a decline from the ROA of 0.1283 in 2022. This denotes a decrease in profitability for the company. Consequently, no point is added for this criterion. It's essential to note that a falling ROA could signify inefficiencies or challenges in converting asset investments into profitable returns. Over the last 20 years, CTSH's ROA has generally hovered below the industry median, which stood at 0.3391 in 2023. This persistent discrepancy underscores potential structural or strategic differences between CTSH and its industry peers, further emphasizing the importance of this negative trend.

Operating Cashflow are higher than Netincome?

This criterion examines whether the operating cash flow is higher than the net income. A higher operating cash flow compared to net income indicates strong cash generation, which is a positive indicator of financial health.

For 2023, the operating cash flow is $2,330,000,000 compared to a net income of $2,126,000,000. Therefore, operating cash flow is higher than net income, earning Cognizant Technology Solutions (CTSH) a score of 1 in this criterion. Historically, CTSH has demonstrated consistent growth in operating cash flow, with a few fluctuations. This trend suggests a robust capacity to generate cash. Additionally, looking at the accruals data, a value under 0.20 is considered manageable. For this period, the accruals are 0.126, indicating that the company is possibly converting its income into cash efficiently.

Liquidity of Cognizant Technology Solutions (CTSH)

Leverage is declining?

Change in leverage is critical in assessing a company's ability to meet its financial obligations. A decrease in leverage suggests improved financial health.

Upon examining the leverage figures, it is evident that the leverage ratio has declined from 0.0757 in 2022 to 0.0611 in 2023. This translates into a 19.4% reduction in leverage. Historically, the company has experienced fluctuations in leverage, peaking notably in 2020 at 0.0892 but showing significant improvement by 2023. This trend is encouraging, as lower leverage enhances the company's solvency and reduces financial risk. However, it is crucial to explore the factors driving this improvement to fully understand its sustainability.

Current Ratio is growing?

Current Ratio measures a company's ability to pay short-term obligations with its current assets. It's an indication of financial health.

In 2023, Cognizant Technology Solutions (CTSH) has a Current Ratio of 2.252, which marks a slight increase from 2.1709 in 2022. This uptick indicates better short-term liquidity and is, therefore, a positive sign for the company. Historically, the firm has maintained an average Current Ratio significantly above the industry median. Over the past two decades, CTSH has struggled to maintain the peak ratios seen in the early 2000s but has consistently performed better than the industry median, which stood at 1.4169 in 2023. In light of these data points, we award 1 point to CTSH for an improved Current Ratio, reflective of improved liquidity.

Number of shares not diluted?

Shares outstanding refers to a company's stock currently held by all its shareholders, including share blocks held by institutional investors and restricted shares owned by the company’s officers and insiders.

For Cognizant Technology Solutions (CTSH), the outstanding shares decreased from 518 million in 2022 to 505 million in 2023. This reduction is generally a positive sign as it could indicate share buybacks, which can return value to shareholders. A share buyback often signals that the company believes its shares are undervalued, and it can increase earnings per share (EPS) by reducing the number of shares outstanding. Hence, according to the Piotroski F-Score criterion, we would add 1 point.

Operating of Cognizant Technology Solutions (CTSH)

Cross Margin is growing?

Gross Margin is a company's net sales minus its cost of goods sold. It indicates the efficiency in production and pricing strategy. A higher margin reveals sound operational efficiency.

Comparing the Gross Margin of 0.3456 in 2023 with 0.3593 in 2022, CTSH has experienced a decrease in its Gross Margin. Therefore, for the Piotroski F-Score, this criterion scores 0 points. The 20-year trend of Gross Margin shows a general decline, with a more pronounced drop coming in recent years. However, it's worth noting that CTSH's margins generally remain above the industry median, indicating they maintain relatively efficient operations. While the industry median of 0.3391 in 2023 shows a rising trend, CTSH's margin decline is concerning. This performance needs further analysis but slows the trend for Piotroski's points allocation, ultimately supporting a 0 score here.

Asset Turnover Ratio is growing?

Asset Turnover is a financial ratio that measures the efficiency of a company's use of its assets to generate sales revenue. It is essential as it indicates how well the firm's assets are being managed.

The Asset Turnover ratio for Cognizant Technology Solutions (CTSH) has decreased from 1.0883 in 2022 to 1.0652 in 2023. This indicates a decline in the efficiency with which the company is using its assets to generate revenue. Historically, the company's asset turnover ratio has varied, peaking at 1.3498 in 2007 and hitting a low of 0.9871 in 2016. Over the past 20 years, the company has struggled to maintain consistently high asset turnover, and the recent decline takes a point away in the Piotroski Analysis.