Last update on 2024-06-05

LOreal (LOR.DE) - Piotroski F-Score Analysis for Year 2023 (Final Score: 6/9)

L'Oréal (LOR.DE) Piotroski F-Score Analysis for 2023 reveals a score of 6/9, indicating strong financial health. Discover detailed insights on profitability, liquidity, and efficiency.

Short Analysis - Piotroski Score: 6

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

LOreal (LOR.DE) scored a 6 on the Piotroski F-Score, indicating a moderately good financial strength. The company has shown positive profitability through net income and cash flow from operations. It has a favorable current ratio and a decreasing number of outstanding shares, which is great for investors. However, the increase in leverage and slight declines in return on assets and asset turnover point to some areas of concern. The consistent high gross margin is a positive sign of efficient cost control.

Insights for Value Investors Seeking Stable Income

L'Oréal's score of 6 suggests it's a relatively strong company but not without faults. Its ability to consistently generate cash and maintain profitability makes it promising. However, the increasing leverage and slight drops in efficiency metrics are cautionary signs. If you're an investor, it's worth diving deeper into why these inefficiencies exist and if they could impact future growth. If L'Oréal can manage its leverage and improve asset utilization, it could be a solid investment option. But do consider these factors carefully.

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

Profitability of LOreal (LOR.DE)

Company has a positive net income?

The net income is a critical indicator of a company's profitability and financial health. Positive net income signifies that a company is earning more than it is spending.

In 2023, L'Oréal reported a net income of €6,184,000,000 which is positive. Historically, L'Oréal's net income has shown a steady growth over the last 20 years, with minor fluctuations. Notably, there has been a clear upward trend from 2021 (€4,597,100,000) to 2023 (€6,184,000,000), indicating not only a rebound but continued growth. This is a favorable sign for the company, earning it 1 point in the Piotroski analysis.

Company has a positive cash flow?

Cash Flow from Operations (CFO) is a measure of the cash generated by a company's regular business operations. This metric is crucial as it indicates the ability of a company to generate enough positive cash flow to maintain and grow its operations, against its operating expenses.

This year's operating cash flow for LOreal (LOR.DE) was €7,604,600,000, which is significantly positive. This is indicative of a strong capability of the company to generate cash through its core business activities. Over the past 20 years, LOreal's operating cash flow has consistently improved, demonstrating reliability and indicating a robust financial health. The upward trajectory, climaxing at €7,604,600,000 in 2023, marks LOreal's proficiency in maintaining and scaling its operations. Hence, the company earns a score of 1 point for a positive CFO.

Return on Assets (ROA) are growing?

The change in Return on Assets (ROA) assesses how efficient a company's management is at using its assets to generate earnings. An increasing ROA suggests improved efficiency and profitability.

In 2022, L'Oréal had an ROA of 0.127, which slightly decreased to 0.1253 in 2023. This decline in ROA indicates a marginal drop in the company's efficiency at generating profit from its assets. Over the past 20 years, L'Oréal has generally shown strong and consistent financial performance, with its operating cash flow steadily rising from €1.78 billion in 2003 to €7.60 billion in 2023. However, compared to the industry median, which fluctuated significantly but remained relatively high, L'Oréal's current ROA is below the industry's levels. Despite robust cash flow growth, this slight drop in ROA for 2023 results in scoring 0 points for this criterion, highlighting a need for the company to potentially reassess operational strategies to enhance asset utilization.

Operating Cashflow are higher than Netincome?

Operating Cash Flow higher than Net Income: This criterion assesses the quality of earnings. If a company’s operating cash flow consistently exceeds net income, it indicates high earnings quality and conservative accounting. It shows that the company can generate more cash than what is reported as net income.

In 2023, L'Oréal's operating cash flow was €7.6 billion, significantly higher than its net income of €6.2 billion. This results in a score of 1 for this criterion. Historically, L'Oréal has often reported operating cash flows higher than net income, demonstrating a strong ability to generate actual cash from its operations as opposed to relying on accounting adjustments. For example, in recent years, from 2021 to 2023, its operating cash flow exceeded its net income each year. This consistency indicates a healthy operational efficiency and a conservative approach in financial reporting, both positively contributing to the financial robustness of the company. Additionally, over twenty years, the company's accruals have exhibited little impairment, supporting a sustained quality of earnings.

Liquidity of LOreal (LOR.DE)

Leverage is declining?

Change in Leverage: Compare the Leverage of 0.0903 in 2022 with the Leverage of 0.1184 in 2023 and check if Leverage increased or decreased. If the Leverage decreased in 2023 add 1 point if not set it to 0.

Result: The Leverage has increased in 2023 The leverage ratio for L'Oreal (LOR.DE) has increased from 0.0903 in 2022 to 0.1184 in 2023. This indicates that the company’s financial risk has grown as it is relying more on debt to finance its operations. Traditionally, high leverage can be a signal of a potential financial strain, especially if the company is not capable of meeting its debt obligations. Considering the changes over the last 20 years, it is notable that there has been a significant ramp-up in leverage particularly since 2019. L'Oréal earlier maintained very conservative leverage levels (close to 0 for many years), but recent years have shown an escalating trend in leverage. From a Piotroski analysis perspective, this increase in leverage is viewed negatively, so this criterion would score 0 points.

Current Ratio is growing?

The Current Ratio measures a company's ability to cover its short-term liabilities with its short-term assets. It is crucial for indicating liquidity.

Comparing the Current Ratio of L'Oréal in 2023 (1.0957) with that in 2022 (1.0241), we observe an increase. This improvement suggests enhanced liquidity and better capability to meet short-term obligations. Over the last 20 years, L'Oréal's Current Ratio has fluctuated and is still trailing the industry median (1.5029 in 2023), but this year's uptick (adding 1 point according to Piotroski criteria) represents a positive development. Specifically, the ratio rose by approximately 7% (from 1.0241 to 1.0957), hinting at strategic measures to fortify short-term financial health.

Number of shares not diluted?

Change in Outstanding Shares assesses whether a company is buying back its shares. Decreased shares suggest improving shareholder value.

In 2023, L'Oreal's outstanding shares slightly decreased to 535,411,255 from 535,898,659 in 2022, reflecting a share buyback. Over the past 20 years, the share count has fluctuated, peaking dramatically in 2014 with over 1.9 billion shares and steadily decreasing since. This downward trend denotes ongoing efforts to enhance shareholder value. For 2023, this criterion adds 1 point, indicating a positive trend.

Operating of LOreal (LOR.DE)

Cross Margin is growing?

The change in gross margin is a good proxy for the company's core pricing power and cost control.

For L'Oreal (LOR.DE), the comparison between the Gross Margin of 0.7386 in 2023 and 0.7235 in 2022 indicates an increase. This is significant, as it reflects positively on the company's ability to manage its production costs and sustain profitability in a challenging economic environment. Gross margin trends from 2003 to 2023 show variable increases, generally positioning L'Oreal above the industry median. In particular, L'Oreal's gross margin has consistently surpassed the industry median over the years, indicating robust performance and competitive advantage in pricing strategies.

Asset Turnover Ratio is growing?

Change in asset turnover is a crucial metric because it indicates how efficiently a company is using its assets to generate sales. A higher turnover suggests better asset utilization.

Comparing L'Oreal's asset turnover ratios, it is evident that the asset turnover has decreased from 0.8516 in 2022 to 0.8345 in 2023. This slight reduction implies that L'Oreal was marginally less efficient in generating sales from its assets in 2023 compared to 2022. Historically, examining the last 20 years, one can observe that the asset turnover peaks occurred more than a decade ago, suggesting a potential long-term trend of declining efficiency. This year's decrease leads to a score of 0 under this criterion.