Last update on 2024-06-06

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

DXC Technology's Piotroski F-Score for 2023 is 6/9, reflecting analysis of profitability, liquidity, and leverage. Learn about its financial health here.

Short Analysis - Piotroski Score: 6

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

The Piotroski F-Score is a measure which evaluates a company's financial strength based on nine criteria around profitability, liquidity, and efficiency. DXC Technology scored a 6 out of 9, showing mixed results. Profitability-wise, the company posted a significant net income loss in 2023, but it had a positive cash flow from operations. Its return on assets has been decreasing, which isn't encouraging. In terms of liquidity, the leverage ratio increased, but the current ratio improved, and the number of outstanding shares went down. For operational efficiency, both gross and asset turnover ratios have shown improvement.

Insights for Value Investors Seeking Stable Income

While DXC Technology displaying some financial stability and improvements in certain areas, its significant net income loss and negative return on assets are concerning. A Piotroski F-Score of 6 suggests the company has moderate financial health. Investors might want to consider this stock but should be cautious, perhaps deeply evaluating other factors and current market conditions before making a decision.

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

Profitability of DXC Technology (DXC)

Company has a positive net income?

Assess whether the Net Income for DXC Technology in 2023 is positive or negative, and evaluate its relevance.

In 2023, DXC Technology reported a net income of -568 million USD, which is a significant drop and hence, negative, resulting in 0 points for this criterion. Compared to the lofty figure of 1.257 billion USD in 2019, followed by a massive loss of -5.369 billion USD in 2020 and a recovery to 718 million USD in 2021, the 2023 figure marks revenue instability. This inconsistent net income shows a volatility that is undesirable for investors.

Company has a positive cash flow?

Cash Flow from Operations (CFO) measures the amount of cash generated by a company's normal business operations. It is an important indicator of financial health.

In the year 2023, DXC Technology reported a positive Cash Flow from Operations (CFO) amounting to $1,415,000,000. This is a clear indicator that the company is generating significant cash from its core business activities. Adding 1 point for the Piotroski score for positive CFO is thus warranted. Reviewing CFO over the last 20 years, we note substantial fluctuations; periods of zero values do indicate potential cyclical challenges or perhaps significant structural changes in the company’s operations. Nonetheless, the current positive trend bolsters the company's financial robustness.

Return on Assets (ROA) are growing?

Change in Return on Assets (ROA) is important when assessing the efficiency with which a company utilizes its assets to generate earnings.

In 2023, DXC Technology's ROA declined from 0.034 in 2022 to -0.0316. This significant decrease is concerning as it suggests the company is earning less income per dollar of assets compared to the previous year. Over the last 20 years, DXC's ROA has generally trended below the industry median. For instance, in 2022, while DXC had an ROA of 0.034, the industry median was 0.3226. With the company now faltering into negative ROA, compared to a steady improvement in the industry's median (0.3391 in 2023), the downward trajectory is discouraging. Therefore, for this criterion, DXC scores 0.

Operating Cashflow are higher than Netincome?

Comparing Operating Cash Flow with Net Income evaluates the quality of earnings. If Operating Cash Flow exceeds Net Income, it suggests robust earnings quality.

The Operating Cash Flow (OCF) for DXC Technology in 2023 was $1,415 million, while the Net Income was a loss of $568 million. Since the OCF significantly exceeds the Net Income, this criterion adds 1 to the Piotroski F-Score for the company. This situation indicates that the company's core operations are generating substantial cash, which is positive even though the overall profitability as indicated by Net Income is negative. This resilience in cash flow is crucial as it suggests that the firm's operational base is strong and can weather short-term profitability issues. Historically, the company has experienced volatility in operating cash flows as seen in the last 20 years, but maintaining a high OCF despite a net loss reflects cautious but effective financial management. Therefore, a score of 1 is warranted for this criterion.

Liquidity of DXC Technology (DXC)

Leverage is declining?

Change in leverage compares the current year's leverage ratio with the previous year's ratio. This criterion assesses the company's relative debt burden year over year.

In 2022, DXC Technology exhibited a leverage ratio of 0.2423, which surged to 0.287 in 2023. This represents an increase in leverage, indicating that the company has taken on more debt relative to its equity. Over the past two decades, leverage levels have fluctuated, with significant peaks noted in 2009 and 2020. Given this upward trend in 2023, DXC Technology would not score a point for this criterion. Rising leverage could point to increased financial risk, especially if it coincides with fluctuating financial health.

Current Ratio is growing?

The Current Ratio is a liquidity ratio that measures a company's ability to cover its short-term liabilities with its short-term assets. A higher ratio indicates better short-term financial health.

The Current Ratio for DXC Technology (DXC) increased from 1.0865 in 2022 to 1.1806 in 2023. This improvement implies a healthier liquidity position, enhancing the company's ability to cover its short-term liabilities with its short-term assets. Over the last 20 years, DXC's Current Ratio has fluctuated significantly but has been below the industry median, which was 1.4169 in 2023 for example. Despite this, the increased ratio in 2023 is a positive trend, suggesting enhanced liquidity management. Here, we award DXC 1 point for this positive change in Current Ratio.

Number of shares not diluted?

The change in shares outstanding reflects the number of shares that have been issued and are currently held by shareholders. It is important because it impacts earnings per share (EPS) and the ownership dilution of existing shareholders.

The outstanding shares of DXC Technology decreased from 250,020,000 in 2022 to 228,990,000 in 2023, reflecting a more favorable trend. This means that the company reduced its number of shares by 21,030,000, resulting in a point for this Piotroski criterion. Historically, the number of outstanding shares has shown periods of increase and decrease, with significant reductions in specific years like 2011 and 2014. This reduction in 2023 is consistent with several past reduction trends, indicating a potentially strong effort to enhance shareholder value and minimize dilution. With this criterion, DXC gains 1 point.

Operating of DXC Technology (DXC)

Cross Margin is growing?

Change in Gross Margin measures the difference in Gross Margin between two periods; it's an indicator of improvement in profitability and cost management.

The Gross Margin for DXC Technology has experienced a slight increase from 0.2202 in 2022 to 0.2207 in 2023, thus meeting the criterion by adding 1 point. This marginal improvement, however small, is positive, demonstrating a slight enhancement in profit margin. Considering the trend, this increment is relatively minor but suggests stabilization in the profitability. Additionally, while still lagging behind the industry median gross margin of 0.3391 in 2023, the upward movement is encouraging, considering the challenges post-2020 where the Gross Margin dipped to 0.2055.

Asset Turnover Ratio is growing?

Asset Turnover measures a firm's efficiency at using its assets to generate sales. A higher ratio implies better performance.

DXC Technology's Asset Turnover increased from 0.7713 in 2022 to 0.802 in 2023. This suggests improved efficiency in utilizing its assets to generate sales and earns a point in the Piotroski analysis. The continuous improvement, seen in recent years, underscores promising operational effectiveness.