Last update on 2024-06-06

Illinois Tool Works (ITW) - Piotroski F-Score Analysis for Year 2023 (Final Score: 6/9)

Analyze Illinois Tool Works (ITW) using the Piotroski F-Score model for 2023. Get insights on profitability, liquidity, and operating efficiency with a score of 6/9.

Short Analysis - Piotroski Score: 6

We're running Illinois Tool Works (ITW) against the Piotroski 9-criteria scoring system to assess profitability, liquidity, and operating efficiency:

Illinois Tool Works (ITW) received a Piotroski F-Score of 6 out of 9, indicating a fairly strong financial position. This score evaluates factors like profitability, liquidity, and operating efficiency. ITW demonstrates solid profitability with a positive net income of $2.957 billion in 2023 and consistent positive cash flow from operations. The operating cash flow exceeding net income points to high-quality earnings. However, ITW falls short on some liquidity and leverage criteria, with a reduced Return on Assets and increased leverage. Despite these, ITW's gross margin and asset turnover ratio improvements are positives, as is the share buyback trend.

Insights for Value Investors Seeking Stable Income

Based on the analysis, ITW has a robust operational and financial foundation, but some areas like leverage and current ratio need monitoring. For investors, ITW could be a valuable stock to consider due to its strong profitability metrics and positive trends in cash flow and asset utilization. However, it's important to keep an eye on the company’s debt levels and how it manages its short-term liabilities. ITW appears to be a good potential investment, but further investigation into its debt management and liquidity position is recommended.

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

Profitability of Illinois Tool Works (ITW)

Company has a positive net income?

Net income is a key indicator of a company's profitability, representing the remaining revenue after all expenses have been deducted.

The net income for Illinois Tool Works (ITW) in 2023 stands at $2.957 billion, which is a positive value. This is important as it reflects the company’s profitability. Over the past 20 years, ITW has consistently reported positive net income every year, with notable fluctuations. The net income peaked at $3.034 billion in 2022, before slightly declining to $2.957 billion in 2023. Despite this minor decrease from the previous year, the continuous profitability suggests strong operational efficiency and effective cost management. Therefore, ITW gains 1 point for this criterion.

Company has a positive cash flow?

Cash Flow from Operations (CFO) indicates the amount of cash a company generates from its regular operating activities. It's a vital indicator of financial health.

The Cash Flow from Operations (CFO) for Illinois Tool Works (ITW) in 2023 stands at $3,539,000,000, indicating a positive cash flow. Historically, examining the last 20 years, ITW has consistently posted positive CFO figures, showcasing a robust performance in cash generation. The CFO rose from $1.37 billion in 2003 to over $3.53 billion in 2023. The consistent positive trend, especially the substantial increase in 2023 compared to previous years, marks a favorable trend for ITW and merits 1 point according to the Piotroski F-Score criteria. This positive trend underscores the company's solid operational efficiency and its ability to generate cash.

Return on Assets (ROA) are growing?

The Change in ROA criterion evaluates whether Illinois Tool Works (ITW) generated a higher return on assets compared to the previous year. This measures profitability and efficiency.

For the years 2022 and 2023, the Return on Assets (ROA) for Illinois Tool Works has slightly decreased from 0.1926 in 2022 to 0.1911 in 2023. Therefore, ITW does not earn a point in this criterion. This trend indicates a small decline in the company's ability to efficiently use its assets to generate earnings. This is less than ideal, especially when contrasted with the industry median ROA which is at 0.3492 in 2023. The sustained, relatively lower ROA of ITW is a red flag, suggesting it is underperforming compared to its industry peers in terms of asset profitability. Over the past 20 years, ITW has also had fluctuating operating cash flow ranging from $1.36B in 2003 to $3.53B in 2023, showcasing variability in financial performance.

Operating Cashflow are higher than Netincome?

The criterion evaluates if Operating Cash Flow (OCF) is higher than Net Income to ensure high-quality earnings.

In 2023, Illinois Tool Works (ITW) reported an Operating Cash Flow (OCF) of $3.539 billion compared to a Net Income of $2.957 billion. This positive spread of $582 million indicates high-quality earnings, as it shows that ITW's earnings are backed by actual cash flow. For the Piotroski F-Score, this criterion is met, adding 1 point to ITW's score. Over the past 20 years, OCF has consistently revealed the company's strong ability to generate cash inflow, reflecting its effective operational management. With accruals historically below 0.23, the correlation between cash flow and profit margins is robust, further reinforcing the positive trend observed this year.

Liquidity of Illinois Tool Works (ITW)

Leverage is declining?

Change in Leverage evaluates a company's financial risk by comparing its leverage (debt to equity ratio) over time.

The leverage for Illinois Tool Works (ITW) has increased from 0.4088 in 2022 to 0.418 in 2023. This means that ITW has taken on more debt relative to its equity within the last year, which might raise concerns about increased financial risk. Historically, ITW's leverage has shown some fluctuations, but this recent increase should be closely monitored by investors. Given that the leverage has increased in 2023 compared to 2022, this criterion scores 0 points in the Piotroski F-Score analysis. It's important to observe that leverage from 2003 (0.0822) to 2023 (0.418) has seen a general upward trend, indicating a long-term increase in reliance on debt.

Current Ratio is growing?

Change in Current Ratio is vital for assessing the company's ability to cover its short-term obligations, indicating its financial health.

The Current Ratio for Illinois Tool Works (ITW) decreased from 1.4058 in 2022 to 1.3337 in 2023. This is a negative trend as a higher current ratio usually signals a stronger liquidity position. Over the past 20 years, the Current Ratio has varied, peaking in 2003 at 3.2126 and hitting its lowest in 2008 at 1.215. Comparatively, the industry median Current Ratio for 2023 is 1.7757, which is significantly higher than ITW's current ratio of 1.3337. Given this context, ITW's current trend points to a potential weakening in its liquidity relative to both its historical performance and industry standards. As a result, ITW does not earn a point for this criterion.

Number of shares not diluted?

Change in Shares Outstanding analyzes the trend in the number of shares issued by a company, indicating equity-financing activities.

Illinois Tool Works (ITW) reported 302,600,000 outstanding shares in 2023, down from 309,600,000 in 2022. This decrease suggests a share buyback program or retirement of shares, which is generally viewed positively as it can enhance Earnings Per Share (EPS) and can be an indicator of management's confidence in the company's fundamentals. Over a 20-year period, ITW's outstanding shares have decreased significantly from 616,674,699 in 2003 to 302,600,000 in 2023. This long-term reduction reflects a consistent strategy of share buybacks. For 2023, we assign 1 point as the outstanding shares have decreased compared to 2022, reinforcing the notion of value creation for shareholders through share repurchases.

Operating of Illinois Tool Works (ITW)

Cross Margin is growing?

The gross margin ratio measures a company's financial health by revealing the core profitability after deducting the cost of goods sold.

The gross margin of Illinois Tool Works (ITW) increased from 0.4082 in 2022 to 0.4216 in 2023, indicating an improvement in core profitability and earning 1 point in the Piotroski Analysis. This positive trend signals ITW's efficient cost management and robust revenue stream. Historically, ITW's gross margin has consistently outperformed the industry median, which was 0.3492 in 2023, highlighting its competitive strength. Notably, this upward trajectory from a 2003 gross margin of 0.3495 to 0.4216 in 2023 underscores long-term financial stability and resilience.

Asset Turnover Ratio is growing?

Asset Turnover measures a company's efficiency in using its assets to generate sales and is crucial for understanding operational performance.

The Asset Turnover for Illinois Tool Works (ITW) increased from 1.0116 in 2022 to 1.0412 in 2023. This improvement is positive and adds 1 point in the Piotroski analysis. Over the last 20 years, ITW's Asset Turnover has shown varying efficiency levels but has generally been stable, indicating successful strategies in utilizing assets to generate sales.