Last update on 2024-06-07

Eastman Chemical (EMN) - Piotroski F-Score Analysis for Year 2023 (Final Score: 7/9)

In-depth Piotroski F-Score analysis of Eastman Chemical (EMN) for 2023, revealing a strong financial position with a score of 7 out of 9.

Short Analysis - Piotroski Score: 7

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

Eastman Chemical's (EMN) overall Piotroski F-Score is 7 out of 9, indicating a strong financial position and operational efficiency. The analysis reveals the following key points: 1) Profitability: EMN has a positive net income of $894M in 2023 and a consistently positive CFO of $1.374B 2) Return on Assets (ROA) improved from the previous year, though it remains below the industry median. 4) Operating cash flow exceeds net income, showing high earnings quality. 5) Liquidity: The current ratio improved to 1.3513, reflecting better short-term financial stability. However, leverage has increased compared to last year, which is a negative factor. 6) Number of shares outstanding decreased, reflecting share buybacks. 7) Efficiency: While the Gross Margin has increased to 0.2238, the Asset Turnover ratio has declined to 0.6287.

Insights for Value Investors Seeking Stable Income

Considering Eastman Chemical's strong financials, especially in profitability, cash flow, and improving current ratio, it presents an attractive investment opportunity. However, potential investors should monitor the rising leverage and declining asset turnover. Overall, with a Piotroski Score of 7, EMN appears to be a robust investment candidate worth further consideration.

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

Profitability of Eastman Chemical (EMN)

Company has a positive net income?

Net income is the total profit a company makes after all expenses. For the Piotroski analysis, a positive net income is an indicator of profitability.

For 2023, Eastman Chemical (EMN) reported a net income of $894 million, which is indeed positive. Over the last 20 years, EMN has generally maintained a positive net income, although there was a notable exception in 2003 when it logged a negative $270 million. This consistency in profitability is a good sign, particularly the steady rise in recent years. Therefore, EMN receives 1 point for this criterion.

Company has a positive cash flow?

Cash Flow from Operations (CFO) is crucial as it shows the actual cash a company generates from its operating activities, distinct from net income.

Eastman Chemical (EMN) had a positive CFO of $1.374 billion in 2023. This indicates strong operational performance. Trend analysis shows fluctuations, peaking at $1.622 billion in 2015, with recent years slightly down but still positive.

Return on Assets (ROA) are growing?

Return on Assets (ROA) measures the efficiency of a company in generating profit from its assets. It is a key profitability metric that investors and analysts use to gauge the efficiency of a company's management in using its assets to generate earnings.

In 2023, Eastman Chemical (EMN) reported a Return on Assets (ROA) of 0.061, up from 0.0525 in 2022. This increase is a positive indicator, effectively improving the company's operational efficiency. A higher ROA indicates better utilization of assets to produce earnings. Historically, the industry median ROA has fluctuated, with recent years averaging around 0.2412 in 2023. Eastman Chemical's ROA, although lower than the industry median, shows improvement, which is a promising sign. Given the uptick in ROA from the previous year, one point is awarded based on this criterion.

Operating Cashflow are higher than Netincome?

Operating cash flow measures the total cash generated from a company's core business operations, excluding investments and financing activities. A higher operating cash flow compared to net income suggests high-quality earnings and robust cash generation capabilities.

For Eastman Chemical (EMN) in 2023, the operating cash flow stands at $1,374 million, significantly higher than the net income of $894 million. This discrepancy indicates robust earnings quality, as the company is generating sufficient cash through its main operations. Historically, EMN's operating cash flow has shown steady growth, reaching its peak in 2015 at $1,657 million. On the contrary, net income has been more volatile, peaking in 2017 at $1,384 million. The continuous rise in operating cash flow, despite fluctuating net income, highlights strong operational efficiency and a sustainable cash-generating ability. This positive trend earns the company a full point under the Piotroski criteria.

Liquidity of Eastman Chemical (EMN)

Leverage is declining?

The leverage ratio compares a company's total debt to its equity. It is important as it indicates the level of financial risk.

The leverage of Eastman Chemical (EMN) has increased from 0.2744 in 2022 to 0.2942 in 2023. This increase indicates that the company has taken on more debt relative to its equity in 2023. With higher leverage, Eastman Chemical is now exposed to higher financial risk. Historically, the leverage ratio for Eastman has fluctuated, with previous peaks in 2012 (0.4113) and 2015 (0.451). Compared to these historical highs, the current leverage ratio is still moderate but shows an increasing trend. Hence, for this Piotroski criterion, the company scores 0 points.

Current Ratio is growing?

The Current Ratio measures a company's ability to pay short-term obligations with its current assets. It's a key indicator of liquidity.

In 2023, Eastman Chemical (EMN) reported a Current Ratio of 1.3513, an increase from 1.1621 in 2022. This improvement suggests a stronger liquidity position, which is positive for short-term financial stability. Comparing the 2023 ratio of 1.3513 with the 20-year industry median of 1.5873, Eastman Chemical's ratio is slightly below the median but shows an upward trend. This increase adds 1 point in the Piotroski Analysis, indicating good short-term financial health.

Number of shares not diluted?

Change in Shares Outstanding examines whether a company is buying back its own stock, which is often a positive signal as it indicates confidence in future growth and can increase shareholder value.

From 2022 to 2023, Eastman Chemical's outstanding shares decreased from 123,500,000 to 118,600,000. This decrease in outstanding shares is a positive indicator according to the Piotroski analysis, suggesting that the company is buying back shares. Taking a broader perspective, over the last 20 years, Eastman Chemical's number of shares outstanding shows a general trend of reduction, from 154,285,714 in 2003 to 118,600,000 in 2023. This trend reflects a prolonged strategy of share repurchases, enhancing shareholder value. For 2023, we would add 1 point in the Piotroski score for this criterion, reflecting a favorable trend.

Operating of Eastman Chemical (EMN)

Cross Margin is growing?

Gross Margin is a financial metric representing the percentage of total sales revenue that the company retains after incurring the direct costs associated with producing the goods and services it sells.

The Gross Margin for Eastman Chemical (EMN) increased from 0.202 in 2022 to 0.2238 in 2023. This signifies an improvement in operational efficiency, as the company has been able to generate more profit from its sales after covering its production costs. The 21.77 basis points increase is a positive indicator, leading to the addition of 1 point in the Piotroski Analysis framework. Over the last 20 years, the Gross Margin has shown fluctuations but generally remained healthy, especially during the periods post-2009 with figures like 0.2969 in 2013. Comparatively, while the industry median Gross Margin for 2023 is also 0.2238, EMN’s performance aligns well with industry standards.

Asset Turnover Ratio is growing?

Asset turnover measures the efficiency of a company's use of its assets to generate sales. It is an important indicator of operational efficiency and strategic positioning.

Eastman Chemical (EMN) experienced a decrease in Asset Turnover from 0.701 in 2022 to 0.6287 in 2023. This trend is negative, suggesting a reduction in efficiency in utilizing its assets to generate sales. Over the last 20 years, the Asset Turnover ratio has displayed a fluctuating trend, peaking at 1.2473 in 2006 and experiencing a general decline since then. This declining trend underlines the need for Eastman Chemical to reassess its asset utilization strategies. Therefore, no point is added for 2023's assessment.