Last update on 2024-06-05

Dow (DOW) - Piotroski F-Score Analysis for Year 2023 (Final Score: 4/9)

Piotroski F-Score analysis of Dow (DOW) for 2023 reveals a financial position score of 4/9. Key insights on profitability, liquidity, and leverage provided.

Short Analysis - Piotroski Score: 4

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

The Piotroski F-Score evaluates a company's strength based on 9 financial criteria across profitability, liquidity, and operating efficiency. Dow (DOW) received a Piotroski Score of 4 out of 9. Here's the detailed breakdown: 1. Positive net income in 2023: +1 point 2. Positive cash flow from operations in 2023: +1 point 3. Declining return on assets (ROA) in 2023: 0 points 4. Operating cash flow higher than net income in 2023: +1 point 5. Increasing leverage in 2023: 0 points 6. Decreasing current ratio in 2023: 0 points 7. Share count reduced in 2023: +1 point 8. Declining gross margin in 2023: 0 points 9. Declining asset turnover ratio in 2023: 0 points. Dow showed positive indicators in net income, cash flow, operating cash quality, and share count reduction. However, it struggled with declining ROA, leverage, current ratio, gross margin, and asset turnover.

Insights for Value Investors Seeking Stable Income

Based on Dow's Piotroski Score of 4, it currently exhibits mixed financial signals. Positives include profitability and cash flow stability, but concerns arise from efficiency and liquidity metrics. Potential investors should proceed with caution, conducting further analysis on growth and risk factors before making any decision.

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

Profitability of Dow (DOW)

Company has a positive net income?

Net income is a crucial indicator of a company's profitability and overall financial health. A positive net income shows that a company is making more money than it spends, reinforcing investor confidence.

In 2023, Dow (DOW) reported a net income of $589 million, marking a positive profitability point. Historically, DOW has experienced fluctuations in net income, with highs in 2015 ($7.6 billion) and deep lows in 2019 (-$1.36 billion). More recently, net income saw a significant decrease from $4.58 billion in 2022 to $589 million in 2023. Despite this decline, the fact that net income remains positive is a favorable sign amid challenging economic conditions. Therefore, under the Piotroski Analysis, Dow earns 1 point for this criterion.

Company has a positive cash flow?

Explanation of why cash flow from operations is critical in financial analysis.

Cash Flow from Operations (CFO) for Dow (DOW) in 2023 is $5,196,000,000, which is positive. Over the last 20 years, CFO has fluctuated significantly, with occasional negative cash flows, specifically in 2016 and 2017, where the values were -$2,957,000,000 and -$4,929,000,000 respectively. However, a positive CFO is a solid indicator of operational efficiency, showing Dow's ability to generate sufficient cash from its core operations. In recent years, the CFO has consistently remained positive, culminating in the 2023 value. This upward trend in cash flow stability post-2018 reflects better management and operational strategies, contributing 1 point to the Piotroski Score.

Return on Assets (ROA) are growing?

Change in Return on Assets (ROA) analyzes the profitability relative to total assets year-over-year. It indicates how efficiently a company uses its assets to generate earnings.

In 2023, Dow (DOW) posted an ROA of 0.0099, significantly lower than the 0.0741 observed in 2022. This marks a considerable decline. The stark decrease should evoke concerns among investors. When looking at the last 20 years, Dow has seen fluctuations in operating cash flow, hitting a peak of $7.48B in 2022 but decreasing to $5.196B in 2023. In comparison, the industry's median ROA remained relatively stable around ~0.22. Dow's inability to uphold a consistent ROA could denote issues in asset utilization and profit generation. Consequently, Dow is assigned 0 points for this criterion.

Operating Cashflow are higher than Netincome?

Operating Cash Flow higher than Net Income

For fiscal year 2023, Dow (DOW) reported an Operating Cash Flow of $5.196 billion compared to a Net Income of $589 million, highlighting a significant discrepancy. Typically, when Operating Cash Flow surpasses Net Income, it can signal a high-quality earnings figure since net income can sometimes be padded by non-cash items. For Dow, this is decidedly positive, implying robust operational efficiency. Observing historical data, fluctuations in Operating Cash Flow, such as the notable drop in 2016 and the negative values in 2015-2016, followed by consistently strengthening figures, demonstrate the company’s resilience and improved cash generation capacity over the years. Therefore, the trend of higher Operating Cash Flow than Net Income is good, yielding a point on the Piotroski Scale.

Liquidity of Dow (DOW)

Leverage is declining?

Change in Leverage refers to changes in the company's financial leverage, which is crucial to evaluating its financial health.

The data indicates that Dow's leverage increased from 0.259 in 2022 to 0.275 in 2023. This recorded increment in leverage scores a zero in Piotroski analysis as it is financially beneficial to have a declining leverage. Moreover, evaluating the historical leverage trend, leverage peaked in 2020 at 0.293 and has seen fluctuations since then with a recent rise in 2023. This upward trend may suggest increasing financial risk, potentially signalling less financial prudence or higher dependence on debt for financing growth.

Current Ratio is growing?

The current ratio measures a company's ability to pay short-term obligations with its short-term assets. A higher ratio indicates better liquidity.

In 2023, Dow's current ratio was 1.769, decreasing from 1.8072 in 2022. This results in a score of 0, as the ratio has not increased. Historically, Dow's current ratio has fluctuated, peaking at 2.1823 in 2015 and dipping to 1.4924 in 2009. Comparatively, the industry median ratio in 2023 is 1.5873, which is still lower than Dow's ratio, reflecting relatively better short-term liquidity. Nevertheless, the declining trend from 2022 to 2023 is a negative signal.

Number of shares not diluted?

Reviewing the change in shares outstanding over time provides key insights into potential dilution effects or shareholder value enhancement strategies, crucial for understanding stock value.

The outstanding shares for Dow (DOW) decreased from 721,000,000 in 2022 to 705,700,000 in 2023, representing a decrease of approximately 2.1%. This trend is positive for investors, as it often suggests the company is effectively utilizing buyback strategies to return value to shareholders. Over the last 15 years, the number of outstanding shares has significantly varied, peaking at 3,883,871,000 in 2015 before stabilizing. This recent decrease aligns with a shareholder-friendly approach, enhancing existing shareholders' equity stakes.

Operating of Dow (DOW)

Cross Margin is growing?

The change in gross margin criterion evaluates a company's efficiency and profitability over time. It is important because an increasing gross margin can indicate better control over production costs and improved pricing strategies.

The gross margin for Dow (DOW) has decreased from 0.1505 in 2022 to 0.1094 in 2023. This decline suggests that the company may be facing challenges with higher production costs or lower pricing power. In the last 20 years, Dow's gross margin has fluctuated significantly, peaking at 0.2243 in 2015 and being relatively volatile year-to-year. It is essential to highlight that the industry's median gross margin for 2023 stands at 0.2238, indicating that Dow is significantly underperforming compared to its industry peers.

Asset Turnover Ratio is growing?

Asset Turnover is a financial ratio that measures the efficiency of a company's use of its assets in generating sales revenue.

The Asset Turnover ratio for Dow (DOW) has decreased from 0.9208 in 2022 to 0.7527 in 2023. A lower Asset Turnover indicates that the company is generating less revenue per dollar of assets, which is not a favorable trend. Historically, from the last 14 years, asset turnover ratios show fluctuating results but an evident decrease from 2012 onward. This aligns with the 2023 figure, which is on the lower end when compared over the last 14 years.