Last update on 2024-06-07

EDP - Energias de Portugal (EDP.F) - Piotroski F-Score Analysis for Year 2023 (Final Score: 6/9)

EDP - Energias de Portugal's Piotroski F-Score for 2023 is 6/9, reflecting profitability, liquidity, and efficiency. Detailed financial analysis included.

Short Analysis - Piotroski Score: 6

We're running EDP - Energias de Portugal (EDP.F) against the Piotroski 9-criteria scoring system to assess profitability, liquidity, and operating efficiency:

The analysis of EDP - Energias de Portugal (EDP.F) using the Piotroski F-Score methodology gives it a score of 6 out of 9. Key points include a positive net income and cash flow from operations, indicating robust profitability and liquidity. There’s an improvement in Return on Assets (ROA) and an increase in gross margin, both showing enhancements in operational efficiency. However, the company shows an increase in leverage and a higher number of outstanding shares, which can be concerning for long-term financial stability. The current ratio has slightly improved, but the asset turnover ratio has decreased, suggesting less efficiency in utilizing assets to generate revenue.

Insights for Value Investors Seeking Stable Income

EDP - Energias de Portugal shows several strengths like positive net income, cash flow, and growing ROA and gross margin that indicate a stable financial condition and efficient operations. However, increasing leverage and share dilution are points of concern that need monitoring. Given its Piotroski score of 6, EDP appears to be a moderately strong investment, but caution should be exercised considering the rising debt and potential dilution risks. It is worth further investigation for investors, especially if strategies to control debt and enhance asset efficiency are in place.

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

Profitability of EDP - Energias de Portugal (EDP.F)

Company has a positive net income?

Net income is the company's total earnings, also called net profit. It is calculated by taking revenues and subtracting the costs of doing business such as depreciation, interest, taxes, and other expenses.

For 2023, EDP - Energias de Portugal (EDP.F) reported a net income of €952,348,000, which is positive. By Piotroski's criterion, a positive net income adds 1 point to the company's financial health score. Over the past 20 years, EDP's net income has shown some fluctuations, but it has remained predominantly positive, peaking at €1,113,169,000 in 2017 and maintaining strong performance in most years, except for a noticeable dip in 2018 and 2019. This positive trend in 2023 signifies robust financial health and stability.

Company has a positive cash flow?

This criterion checks if the company's Cash Flow from Operations (CFO) is positive. A positive CFO indicates that the company is generating sufficient cash from its core business operations, which is a crucial indicator of financial health. Positive cash flow allows a company to meet its obligations, reinvest in its business, pay dividends, and reduce debt.

In 2023, EDP - Energias de Portugal reported a Cash Flow from Operations (CFO) of 2.19 billion. This CFO is indeed positive, so the company earns 1 point for this criterion. Looking at the historical data, EDP has consistently maintained positive operational cash flow for the past 20 years. For example, it had a CFO of approximately 4.85 billion in 2013 and 3.78 billion in 2022. Such consistent positive cash flow underscores robust operational efficiency over a prolonged period.

Return on Assets (ROA) are growing?

Change in Return on Assets (ROA) measures a company's efficiency in generating profit from its assets over a period. A year-over-year increase suggests better operational performance.

The ROA for EDP increased from 0.0124 in 2022 to 0.0165 in 2023. This improvement results in earning 1 point for this criterion. Although a year-over-year boost in ROA is positive, it's crucial to observe that EDP's ROA significantly underperforms when compared to the industry median ROA, which stood at 0.3416 in 2023. Such context highlights the disparity in asset efficiency and underscores potential areas for strategic enhancements.

Operating Cashflow are higher than Netincome?

Operating Cash Flow higher than Net Income assesses whether a company generates more cash from its operations than its net income. Cash flow is a vital indicator of financial health as it shows the actual cash being generated, in contrast to net income which can be affected by non-cash items.

Comparing the operating cash flow of €2.19 billion to the net income of €952.35 million for EDP in 2023, it is evident that the company is generating significantly more cash from its operations than its net income. This is a favorable indicator as it suggests robust cash generation, which is crucial for meeting obligations, investing in growth, and returning value to shareholders. Over the past two decades, EDP has generally shown strong operating cash flows, although these have fluctuated. This 2023 figure indicates healthy cash flow management and operational efficiency, earning a point for this criterion.

Liquidity of EDP - Energias de Portugal (EDP.F)

Leverage is declining?

Change in Leverage measures the company's solvency, reflecting its ability to meet long-term financial obligations. It's crucial for assessing financial risk.

The Leverage of EDP - Energias de Portugal (EDP.F) has increased from 0.3019 in 2022 to 0.3272 in 2023. This upward trend means the company's debt level relative to its equity has grown, which can be a sign of increasing financial risk. Initially, this might not be a concern, but consistently rising leverage over time might erode investor confidence. Historically, EDP's leverage has seen fluctuations, peaking in the late 2000s and gradually stabilizing post-2014. The increase in leverage results in EDP receiving a score of 0 for this criterion.

Current Ratio is growing?

The Current Ratio measures a company's ability to pay short-term obligations with its current assets. It is important to consider as it shows the company's liquidity position.

The Current Ratio of EDP - Energias de Portugal (EDP.F) increased from 0.8816 in 2022 to 0.9066 in 2023, adding 1 point in the Piotroski Analysis. Although this improvement is positive, the current ratio is still below the industry median of 0.8538 for 2023, indicating that EDP's liquidity is comparatively weaker. Over the last 20 years, EDP's current ratio has seen fluctuations, with a peak at 1.2067 in 2021 and a low of 0.5888 in 2008, showing periodic challenges in maintaining liquidity.

Number of shares not diluted?

Change in Shares Outstanding measures the difference in the number of shares issued by a company between two periods. It provides insight into capital structure adjustments.

The Outstanding Shares increased from 3,946,840,015 in 2022 to 4,128,985,676 in 2023. This signals a rise in the number of shares by 182,145,661 shares or approximately 4.6% year-over-year. EDP therefore gets 0 points for this criterion as the shares have not decreased. Historically, there has been a strong upward trend in the number of shares EDP has issued, especially visible with major jumps in 2019 and 2020. This trend may point towards frequent equity financing which could dilute existing shareholders but might be crucial for funding growth and operations.

Operating of EDP - Energias de Portugal (EDP.F)

Cross Margin is growing?

The criterion measures the change in the company's gross margin over time. An increasing gross margin typically indicates improving profitability and operational efficiency, which is crucial for evaluating financial health.

In 2023, EDP - Energias de Portugal's gross margin was noted at 0.3593, compared to 0.243 in 2022. This marks a significant increase in gross margin by 47.89%, which demonstrates enhanced profitability and efficiency. Historically, fluctuations in gross margin are common in the energy sector due to varying fuel costs, energy prices, and regulatory changes. The 2023 gross margin not only reflects an improvement from the previous year but also surpasses the industry's median of 0.3416. Notably, in EDP's 20-year history, margins have ranged from 0.243 to 0.4185. Adding 1 point for this year aligns with Piotroski's criterion for increased profitability, signaling a positive trend.

Asset Turnover Ratio is growing?

The criterion assesses the efficiency with which a company uses its assets to generate sales, calculated as revenue divided by average total assets.

The Asset Turnover for EDP - Energias de Portugal has decreased from 0.3761 in 2022 to 0.2805 in 2023. Therefore, EDP will not receive a point for this criterion. Analyzing the trend over the last 20 years, we notice fluctuating but generally declining Asset Turnover ratios. The highest recorded was 0.4183 in 2006, while 2023 marks the lowest at 0.2805. This reduction suggests that the company may be generating less revenue per unit of asset, which might indicate inefficiencies or operational challenges. These factors are crucial for investors to consider, as they reflect how effectively a company can use its assets in relation to its revenue generation, potentially impacting its profitability and attractiveness as an investment.