Last update on 2024-06-06

W.W. Grainger (GWW) - Piotroski F-Score Analysis for Year 2023 (Final Score: 8/9)

Analyze W.W. Grainger's (GWW) impressive financial standing for 2023 through our detailed Piotroski F-Score review, achieving a score of 8/9, depicting strong profitability.

Short Analysis - Piotroski Score: 8

We're running W.W. Grainger (GWW) against the Piotroski 9-criteria scoring system to assess profitability, liquidity, and operating efficiency:

The Piotroski Score is a tool that helps investors figure out how strong a company's finances are. It's based on 9 things like profitability, how easily the company can pay its bills, and how much debt it has. A high score means the company is solid and maybe undervalued. W.W. Grainger (GWW) got a high score of 8 out of 9, which is really good. This means the company is financially strong with good profits, cash flow, and less share dilution. But, there's a little concern since their use of assets to generate sales dropped a bit, and their debt went up a bit too.

Insights for Value Investors Seeking Stable Income

Based on the Piotroski Score, W.W. Grainger (GWW) seems like a promising stock to consider for investment. With solid profitability and liquidity, and a track record of reducing outstanding shares, it shows strong financial management. The only slight negatives were the minor rise in debt and the slight drop in asset turnover. Overall, it’s worth taking a closer look if you're thinking about investing.

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

Profitability of W.W. Grainger (GWW)

Company has a positive net income?

Net income measures how profitable a company is over a period of time and is a critical determinant of financial health.

For the year 2023, W.W. Grainger (GWW) has reported a net income of $1,829,000,000, which is a positive figure. This is an essential criterion in the Piotroski Score as a positive net income would earn 1 point, while a negative figure would contribute 0 points. Given the solid upward trend in net income consistently over the past 20 years—growing from $226.97 million in 2003 to $1.83 billion in 2023—this is a very positive indication of financial health and sustained profitability. The company earns 1 point for this criterion under the Piotroski analysis. Notably, W.W. Grainger has managed steady growth in profitability, demonstrating resilience and effective operational strategies. This trend is undeniably a strong testament to the company's robust financial performance and management effectiveness.

Company has a positive cash flow?

Evaluating whether the Cash Flow from Operations (CFO) is positive is crucial because it indicates the company's ability to generate sufficient operational cash flow to maintain and grow their operations.

For W.W. Grainger (GWW), the CFO in 2023 is $2,031,000,000, which is positive. Over the past two decades, the company has consistently maintained a positive CFO, starting from $394,108,000 in 2003 to $2,031,000,000 in 2023. Such a robust upwards trend reflects efficient management and sound operating practices. Positive cash flow is highly favorable, suggesting strong operational performance and reduced reliance on external financing.

Return on Assets (ROA) are growing?

Return on Assets (ROA) measures a company’s efficiency at generating profits from its assets, indicating financial performance over time.

W.W. Grainger (GWW) shows an increase in ROA from 0.2182 in 2022 to 0.2325 in 2023, earning 1 point in the Piotroski F-Score. This improvement indicates better efficiency in generating profits from its assets, surpassing its own previous year's performance. Over the last 20 years, GWW's ROA has generally trended upwards, contrasting with a fluctuating industry median. Despite the positive trend, the company’s ROA is still slightly below the recent industry median of 0.3023. Thus, while the increasing trend is favorable, there remains room for growth to fully match industry norms.

Operating Cashflow are higher than Netincome?

Determine if the Operating Cash Flow being higher than Net Income is important for W.W. Grainger (GWW)

In 2023, the Operating Cash Flow (OCF) for W.W. Grainger is $2.031 billion, whereas the Net Income is $1.829 billion. The OCF being higher than Net Income by $0.202 billion is significant because it indicates a robust cash generation capacity of the company. It is vital for W.W. Grainger as it ensures the company's operations are not just paper profits, but actual cash, which can be used for reinvestment, paying down debt, or returning value to shareholders. This yields a point in the Piotroski analysis.

Liquidity of W.W. Grainger (GWW)

Leverage is declining?

This criterion assesses whether the company's financial leverage has decreased over the past year. Lower leverage suggests reduced financial risk.

W.W. Grainger has experienced an increase in leverage from 0.3249 in 2023 compared to 0.3429 in 2022. This 5.55% rise in leverage means that the company has taken on more debt relative to its equity, increasing financial risk. Historically, Grainger's leverage has seen significant fluctuations: from almost negligible levels in early 2000s to a peak of 0.409 in 2021. Such trends suggest evolving capital structure strategies that prioritize leverage variations as per business demands and market conditions. However, the current increase does impose greater risk, warranting scrutiny from stakeholders. Hence, for Piotroski analysis, this criterion scores a 0.

Current Ratio is growing?

The Current Ratio criterion in the Piotroski Analysis assesses a company's ability to meet its short-term obligations with its short-term assets.

The Current Ratio of W.W. Grainger (GWW) improved from 2.4761 in 2022 to 2.8804 in 2023. This is a positive trend indicating enhanced liquidity. Historically, W.W. Grainger's Current Ratio has fluctuated, with a 20-year low of 1.7045 in 2015 and a high of 2.8804 in 2023. Comparatively, the industry's median Current Ratio for 2023 is 2.4086, suggesting W.W. Grainger is outperforming its peers in liquidity. This increase earns W.W. Grainger a score of 1 in this criterion.

Number of shares not diluted?

Change in shares outstanding measures if the company is actively managing its share count, with a decrease often indicating management confidence or repurchase programs.

The outstanding shares of W.W. Grainger decreased from 50,900,000 in 2022 to 49,900,000 in 2023. This reduction demonstrates a positive trend as it suggests that the company is implementing share repurchase programs or other strategies to consolidate shares, likely to increase shareholder value. Over the last 20 years, outstanding shares have consistently decreased from 92,394,085 in 2003 to 49,900,000 in 2023, indicating long-term strategies to manage and potentially enhance shareholder returns. Therefore, we add 1 point for this criteria, marking it as a favorable change.

Operating of W.W. Grainger (GWW)

Cross Margin is growing?

Change in Gross Margin compares the current year's gross margin to the previous year's to assess improvement in profitability and efficiency.

The Gross Margin for W.W. Grainger (GWW) increased from 0.3841 in 2022 to 0.3942 in 2023, which is a positive trend. This increase indicates better cost control and pricing strategies, making the company more efficient and potentially more profitable. Over a 20-year period, the gross margin has predominantly trended higher, and this upward trajectory in recent years solidifies GWW's strong financial performance. Compared to the industry's median gross margin of 0.3023 in 2023, GWW outperforms significantly, showcasing its superior operational efficiency.

Asset Turnover Ratio is growing?

Asset Turnover measures how efficiently a company utilizes its assets to generate sales. Comparing the Asset Turnover of different periods provides insights into changes in operational efficiency. Companies strive to optimize this ratio as an improved asset turnover suggests better utilization of assets to drive revenue.

The Asset Turnover for W.W. Grainger in 2023 was 2.0944, compared to 2.1478 in 2022. This shows a slight decrease. Therefore, the Piotroski F-Score for this criterion is 0 points since the ratio has not improved. Over the Last 20 years, W.W. Grainger's Asset Turnover ratio has seen variable trends, with a low of 1.718 in 2009 and a peak at 2.1478 in 2022. The consistent upward trend seen in recent years up until 2022 indicates strengthening operational efficiency, although the slight decline in 2023 needs monitoring to ensure it does not become a negative trend.