Last update on 2024-06-06

Dollar General (DG) - Piotroski F-Score Analysis for Year 2023 (Final Score: 5/9)

Piotroski F-Score Analysis of Dollar General (DG) for 2023, final score of 5/9. Assessing financial health, profitability, liquidity, and efficiency.

Short Analysis - Piotroski Score: 5

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

We evaluated Dollar General (DG) using the Piotroski F-Score, which assesses a company's financial health on a scale of 0 to 9 based on nine criteria covering profitability, liquidity, and operating efficiency. Dollar General scored a 5, denoting a medium financial position. Highlights include a positive net income, strong cash flow from operations, and decreasing number of shares outstanding. However, there are concerns with decreasing return on assets, rising leverage, and a decline in gross margin, indicating potential financial risks and pressures.

Insights for Value Investors Seeking Stable Income

Given Dollar General's Piotroski Score of 5, the company showcases moderate financial health. While there are positive indicators like steady profits, strong cash flows, and share buybacks, the concerns over rising leverage and reduced return on assets cannot be ignored. As an investor, this stock might be worth exploring further, but caution is advised due to mixed financial signals.

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

Profitability of Dollar General (DG)

Company has a positive net income?

Net income is the total profit of a company after accounting for all expenses and taxes. A positive net income indicates profitability.

Dollar General (DG) has reported a net income of $2,415,989,000 for the year 2023, which is a positive figure. Historically, the net income data over the last 20 years shows that Dollar General has generally been profitable, with the only exceptions being in 2008 when it reported a net loss of $12,816,000. Year-over-year, the net income improved from $2,399,232,000 in 2022 to $2,415,989,000 in 2023. This indicates a consistent trend towards profitability for Dollar General, even in the face of economic challenges. Hence, this trend positively contributes to the Piotroski score, adding 1 point.

Company has a positive cash flow?

Cash Flow from Operations (CFO) measures the cash that a company generates from its regular business operations. A positive CFO indicates that the company is well-capitalized to invest in its growth, pay dividends, and handle debts, reflecting strong operational efficiency.

Dollar General (DG) reported a positive CFO of $1,984,555,000 in 2023, adding 1 point in the Piotroski analysis. This represents the company's ability to generate sufficient cash from its core operations, a positive sign of financial health. Comparing this with the historical data, DG's CFO has shown significant growth over the past two decades, from $434,040,000 in 2003 to a peak of $3,876,159,000 in 2021, before decreasing slightly to the current level. Despite the recent decline, the continued positive CFO underscores a strong cash generation capability.

Return on Assets (ROA) are growing?

Change in ROA refers to the year-over-year change in the return on assets ratio, a key metric of profitability.

ROA in 2023 was 0.0872, compared to 0.0919 in 2022 for Dollar General (DG). This indicates a decrease in ROA in 2023. As per Piotroski's criteria, a decrease in ROA warrants a score of 0. Despite this drop, it's crucial to consider a broader perspective. An analysis of Dollar General's 20-year ROA reveals longstanding profitability trends and the industry's median ROA, traditionally significantly higher. For example, Dollar General's operating cash flow in 2019 reached $2,143.550 million versus the 2023 figure of $1,984.555 million.

Operating Cashflow are higher than Netincome?

The criterion assesses if Operating Cash Flow is greater than Net Income. It's important as it reflects the quality of earnings, showing if profits are backed by strong cash flow.

For Dollar General (DG), the Operating Cash Flow in 2023 is $1,984,555,000 while the Net Income is $2,415,989,000. Here, the operating cash flow is lower than the net income, which is not ideal per Piotroski's criterion as it indicates potential earnings management or accruals driving profits rather than actual cash flow. Therefore, this trend is negative, adding 0 point to the score. Over the last 20 years, it's notable that DG's operating cash flow has generally trended upward despite occasional dips, indicating overall operational efficiency and health. However, the latest year's lower operating cash flow versus net income requires monitoring.

Liquidity of Dollar General (DG)

Leverage is declining?

Change in leverage examines how a company's financial risk profile is evolving. Lower leverage suggests lesser reliance on debt financing.

In 2023, Dollar General's (DG) leverage rose to 0.5629 from 0.4962 in 2022, indicating an increase in the company's reliance on debt. This upward trajectory, evidenced by the climb from 0.4701 in 2020, signals increased financial risk. Evaluating data from a 20-year perspective, one can observe swings, with the highest leverage levels recently, contrasting lows like 0.0902 in 2006. A score of 0 is warranted as the leverage hasn't decreased, posing potential balance sheet concerns.

Current Ratio is growing?

Explain the criterion for Dollar General (DG) and why it is important to consider

The Current Ratio is a liquidity metric that indicates a company's capacity to cover its short-term liabilities with its short-term assets. A higher Current Ratio suggests that the company has a better liquidity position, which is crucial in meeting short-term obligations and avoiding liquidity crunches.

Number of shares not diluted?

This criterion evaluates the change in the number of shares outstanding to understand whether the company is engaging in stock buybacks or issuing new shares.

The Outstanding Shares for Dollar General (DG) decreased from 234,261,000 in 2022 to 225,148,000 in 2023. This is a decrease, thus adding 1 point in the Piotroski Analysis. A reduction in the number of shares outstanding is often viewed positively as it indicates that the company might be repurchasing its shares, which can signal management's confidence in the company's future. Over the last 20 years, the outstanding shares have largely been on a downward trend, starting from 335,050,000 in 2003 to 225,148,000 in 2023, which can signal consistent share buyback activities.

Operating of Dollar General (DG)

Cross Margin is growing?

The gross margin measures a company's production efficiency by comparing the difference between total revenue and the cost of goods sold. It is a crucial indicator of a company's financial health.

Dollar General's gross margin has decreased slightly from 0.316 in 2022 to 0.3123 in 2023. This decline in gross margin suggests a decreased efficiency in managing its production costs relative to sales revenue. Over the past 20 years, Dollar General's gross margin has shown variation, peaking at 0.3204 in 2011 and reaching a low of 0.2583 in 2007. In comparison to the industry median gross margin of 0.3123 in 2023, Dollar General is on par, reflecting industry-wide pressures on margins.

Asset Turnover Ratio is growing?

Asset Turnover measures a company's efficiency in using its assets to generate sales or revenue, and a rise typically indicates better utilization of assets.

Dollar General's (DG) Asset Turnover increased from 1.3114 in 2022 to 1.366 in 2023, suggesting improved efficiency in asset utilization. Over the last 20 years, while the ratio peaked in 2007 at 3.04, there was a notable decline to 1.1921 in 2009 and 1.3114 in 2022 before this recent rise. Despite current improvement, it's essential to note the long-term downtrend from higher levels in the mid-2000s. For the specific Piotroski criterion, this trend earns DG 1 point.