Last update on 2024-06-14

Eli Lilly (LLY) - Piotroski F-Score Analysis for Year 2023 (Final Score: 6/9)

Analyze Eli Lilly's 2023 financial strengths using the Piotroski F-Score. Report highlights profitability, cash flow, and operational efficiencies.

Short Analysis - Piotroski Score: 6

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

The Piotroski F-Score measures the financial strength of a company based on 9 criteria which assess profitability, liquidity, and operating efficiency. A score of 6 out of 9 for Eli Lilly (LLY) indicates moderate financial strength, highlighting both strengths such as consistent positive net income and positive cash flow from operations and weaknesses like a declining ROA and leverage that isn't improving. Eli Lilly's gross margins and asset turnover have improved, which is positive, but the decline in the current ratio suggests liquidity issues in the short term.

Insights for Value Investors Seeking Stable Income

While Eli Lilly (LLY) shows strong profitability and operational efficiency, indicated by a positive net income and improvements in gross margin, the decline in ROA and current ratio, along with increased leverage, raises some concerns. Investors might find the stock worth looking into due to the company's consistent financial health over the years and recent operational improvements. However, monitoring the company's liquidity position and leverage trends would be prudent to ensure it can manage short-term obligations without added financial stress.

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

Profitability of Eli Lilly (LLY)

Company has a positive net income?

Net income represents a company's total earnings or profit. A positive net income is crucial as it indicates profitability and financial health, adding +1 to the Piotroski score.

For 2023, Eli Lilly (LLY) reported a positive net income of $5,240,400,000. This is a favorable indicator for the company, contributing positively to the Piotroski score with a score of +1. Observing the trend over the last 20 years, Eli Lilly's net income has generally been positive, with only two years (2008 and 2017) recording negative profits. Overall, the consistent profitability signifies steady financial health and formidable market presence, making this trend a positive one for the net income criterion.

Company has a positive cash flow?

Cash Flow from Operations (CFO) indicates the amount of cash generated by a company's core business activities. It is crucial because it shows whether a company can generate sufficient positive cash flow to maintain and grow its operations, without resorting to external financing.

In 2023, Eli Lilly's Cash Flow from Operations (CFO) was $4,240,100,000, which is indeed positive. Thus, it earns 1 point for this criterion. Historically, Eli Lilly has consistently demonstrated positive cash flow from operations over the past 20 years except for a minor dip in 2015. Comparing the span from 2010 to 2023, the average CFO stands around $5.7 billion, illustrating a stable cash flow trend. Hence, a positive cash flow is a good indicator given that the company continues to generate sufficient funds from its core operations, reflecting operational efficiency and robust business performance.

Return on Assets (ROA) are growing?

Change in ROA: Compare the ROA of a company over two consecutive years. If the ROA increases, it indicates improved profitability from the company's assets, thereby earning 1 point in the Piotroski Analysis. This metric is crucial as it reflects the company's efficiency in utilizing its assets to generate earnings.

In 2023, Eli Lilly's Return on Assets (ROA) was 0.0923, a decrease from 0.1271 in 2022. This signifies a decline in profitability and efficiency in utilizing assets, setting the score for this criteria to 0. Historically, the company's ROA fluctuated but mostly stayed below the industry median ROAs, which ranged from 0.7483 in 2003 to 0.7176 in 2023, showcasing any fundamental performance challenges within Eli Lilly's operational efficiency. Comparing Eli Lilly’s 2023 ROA of 0.0923 with the industry median ROA of 0.7176 in the same year reveals a significant divergence, indicating industry outperformance against Eli Lilly’s returns. Hence, this trend is problematic for Eli Lilly’s valuation and competitive standpoint.

Operating Cashflow are higher than Netincome?

The operating cash flow being higher than net income emphasizes a company's ability to generate more real cash than the accounting profits reported. This is important as it signifies strong liquidity and operational efficiency, often indicating less aggressive accounting practices.

For Eli Lilly (LLY) in 2023, the operating cash flow was $4,240,100,000, whereas the net income was $5,240,400,000. The operating cash flow is lower than the net income, resulting in a score of 0. Historically, from 2003 to 2023, Eli Lilly's operating cash flow has generally demonstrated strength, with significant peaks observed in 2008 at $7,295,600,000 and a recent high in 2022 at $7,585,700,000. However, the notable divergence in 2023 might raise some concerns about recent operational challenges or changes in working capital management. Overall, this trend signals potential areas for closer financial scrutiny.

Liquidity of Eli Lilly (LLY)

Leverage is declining?

Comparing a company's leverage involves examining its debt relative to equity, ideally seeing a decrease.

Eli Lilly's leverage has increased from 0.2978 in 2022 to 0.2862 in 2023, indicating a rise in its debt level relative to equity, which is a negative signal. Over the last 20 years, the company's leverage had notably risen around 2019 from 0.2651 to 0.3641 in 2020, showing significant debt intake. This indicates a rise in financial risk.

Current Ratio is growing?

Change in Current Ratio measures a company's ability to cover its short-term obligations with its short-term assets. An increasing ratio is typically a positive indicator.

For Eli Lilly (LLY), the Current Ratio has decreased from 1.0523 in 2022 to 0.9426 in 2023. This decline suggests that the company is less capable of covering its short-term liabilities with its short-term assets compared to the previous year. In terms of the Piotroski Analysis, this results in a score of 0 for this criterion. Looking at the historical data, Eli Lilly's current ratio has seen fluctuations, notably peaking at 2.3265 in 2007. Compared to the industry median, which stands at 1.2749 in 2023, Eli Lilly's current ratio remains below average, hinting that its liquidity position isn't as robust as the broader sector. This downward trend could raise concerns for stakeholders about the firm's short-term financial stability.

Number of shares not diluted?

Change in Shares Outstanding refers to the difference in the number of shares of a company that are currently held by investors. An important factor in the Piotroski analysis, it reflects corporate actions such as share buybacks, issuances, and conversions, impacting earnings per share and signaling management's confidence in the company's future.

When comparing the Outstanding Shares of Eli Lilly (LLY) in 2022 (950,182,000 shares) with 2023 (900,181,000 shares), we observe a decrease in shares outstanding. This reduction indicates that the company likely engaged in share buybacks or similar measures, reducing the total number of shares in the market and potentially increasing the value of remaining shares. This trend is positive for investors, reflecting management's confidence in the company's prospects and suggesting a focus on enhancing shareholder value. Historically, the outstanding shares have decreased significantly over the last decades, reaching its peak in 2011 with more than 1.1 billion shares and hitting a lower number in recent years. For 2023, a point is awarded in the Piotroski analysis as the outstanding shares have decreased.

Operating of Eli Lilly (LLY)

Cross Margin is growing?

Change in Gross Margin is a criterion that examines whether a company's gross margin has increased compared to the previous year.

Eli Lilly's Gross Margin increased from 0.7677 in 2022 to 0.7925 in 2023, representing a positive trend with a gain of 2.49%. Historically, Eli Lilly's margin has also generally been higher than the industry median, reflecting a robust ability to control production costs while maintaining high profitability. This increase adds 1 point under the Piotroski Score, indicating an improvement in operational efficiency.

Asset Turnover Ratio is growing?

Asset Turnover has increased from 0.5807 in 2022 to 0.6013 in 2023. This criteria receives 1 point.

Eli Lilly (LLY) exhibited an increase in its Asset Turnover from 0.5807 in 2022 to 0.6013 in 2023, which translates to a growth of approximately 3.55%. This rising trend in Asset Turnover conveys that the company was more effective in utilizing its assets to generate sales over the past year. Historically, examining the past 20 years of data reveals that the Asset Turnover ratio has experienced fluctuations, with notable highs around 0.7646 in 2007 and lows around 0.5417 in 2014. The recent increase aligns positively with the company's consistent effort toward asset utilization efficiency. Investors often scrutinize the Asset Turnover ratio as a critical metric since it indicates how efficiently a company is utilizing its assets to produce revenue. The rising trend can signify operational efficiency and potentially enhance investor confidence.