Last update on 2024-06-05

Merck (MRK) - Piotroski F-Score Analysis for Year 2023 (Final Score: 5/9)

Merck's Piotroski F-Score for 2023 is 5/9, reflecting its financial health through metrics on profitability, liquidity, and operational efficiency.

Short Analysis - Piotroski Score: 5

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

Merck (MRK) received a Piotroski F-Score of 5 out of 9, indicating mixed financial health. The scoring criteria, which include profitability, liquidity, and operating efficiency, point to Merck's consistent positive net income and strong cash operations. However, decreasing ROA, increasing leverage, and a declining current ratio suggest potential red flags. While Merck has maintained a strong gross margin and slight improvement in asset turnover, the increase in outstanding shares raises concerns about equity dilution.

Insights for Value Investors Seeking Stable Income

Given Merck's Piotroski F-Score and the analysis, investors should approach with careful consideration. The company's consistent net income and strong cash flows are positives, but the decline in ROA and increases in leverage and share dilution imply caution. Further investigation into Merck's strategic decisions and operational efficiency would be prudent for potential investors.

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

Profitability of Merck (MRK)

Company has a positive net income?

Net income is a company's total earnings, also called net profit. It is calculated by taking revenues and subtracting the costs of doing business, such as depreciation, interest, taxes, and other expenses. Positive net income indicates profitability.

Merck (MRK) has demonstrated a consistent ability to generate positive net income over the past two decades, with the exception of a significant decline in 2023 to $365,000,000 from $14,519,000,000 in 2022. The affirmative net income in 2023, although a drastic fall, confirms Merck's operational profitability. In terms of Piotroski’s criteria, a positive net income adds 1 point, reflecting good financial health despite the profound dip.

Company has a positive cash flow?

Cash Flow from Operations (CFO) measures the amount of cash generated by a company's regular operating activities. A positive CFO indicates that a company's core business activities are healthy and generating sufficient cash.

For Merck (MRK) in 2023, CFO is $13,006,000,000, which is a positive figure. Historically, over the last 20 years, Merck has had positive operating cash flows, indicating strong operational efficiency. In 2022, the CFO peaked at $19,095,000,000, demonstrating significant cash generation. Thus, we can add 1 point for this criterion. This consistent positive trend underscores Merck's robust financial health and its capacity to sustain operations through internally generated cash.

Return on Assets (ROA) are growing?

Change in Return on Assets (ROA) measures the company's efficiency in generating profits from its assets compared to the last year

For Merck (MRK), the Return on Assets (ROA) significantly decreased from 0.1352 in 2022 to 0.0034 in 2023. This drastic decline signifies a deteriorating efficiency in utilizing assets to generate profits. Over the last 20 years, Merck's operating cash flow generally underscored resilience, with figures like $13,406 million in 2019 and $19,095 million in 2021. However, the steep decline in ROA in 2023, compared to the industry median ROA of 0.7176 for the same year, indicates a substantial underperformance against its peers. Thus, for this criterion, Merck scores 0 points as it failed to improve its ROA.

Operating Cashflow are higher than Netincome?

In Piotroski's F-Score model, one criterion involves determining if the company's operating cash flow is higher than its net income. This metric evaluates the quality of earnings and potential profit manipulation, with a higher operating cash flow indicating more sustainable earnings.

In 2023, Merck's operating cash flow was $13,006,000,000, significantly higher than its net income of $365,000,000. Thus, Merck scores a point for this criterion, indicating a positive sign for the company's financial health. Historically, Merck's operating cash flow has generally trended higher than net income, suggesting strong cash generation capabilities compared to earnings. For instance, in 2022, the operating cash flow was $19,095,000,000, while net income was $14,519,000,000. In essence, Merck consistently maintains a robust operational cash framework, showing a general pattern where its cash flow operations are strong relative to its earnings.

Liquidity of Merck (MRK)

Leverage is declining?

Change in Leverage for Merck (MRK) reflects the company's financial strategy in managing its debt relative to its equity. A decrease in leverage suggests better financial health and less risk, whereas an increase indicates higher risk and potential financial stress.

Analyzing Merck's leverage, we observe an increase from 0.2633 in 2022 to 0.3158 in 2023, resulting in a rise by 0.0525. Therefore, this criterion scores 0 points as the leverage has increased, reflecting a potentially higher financial risk. Historical data shows that leverage for Merck has remained relatively stable over the past decade with minor upticks, suggesting controlled debt management until the recent increment.

Current Ratio is growing?

Current Ratio assesses a company's ability to pay short-term obligations. An increasing ratio suggested improving liquidity.

Merck's Current Ratio decreased from 1.4737 in 2022 to 1.252 in 2023, indicating a decline in liquidity. With the ratio dropping closer to the industry median of 1.2749, this dip might reflect potential challenges Merck faces in meeting short-term liabilities. Historically, Merck's Current Ratio has seen fluctuations but has struggled to consistently outperform the industry median. This trend is unfavorable for Merck, awarding it 0 points for this Piotroski criterion.

Number of shares not diluted?

Change in Shares Outstanding refers to the difference in number of company shares over a period and indicates how much equity capital is being utilized.

Comparing the outstanding shares from 2022 (2,532,000,000) to 2023 (2,537,000,000), Merck experienced an increase in outstanding shares by 5,000,000. This increase indicates dilution, which can be either for raising capital or other strategic purposes. Analyzing the historical trend, significant increases have occurred multiple times indicating patterns of capital issuance or acquisitions.

Operating of Merck (MRK)

Cross Margin is growing?

The criterion examines whether a company's gross margin has improved compared to the previous year. A higher gross margin indicates better control over production costs relative to revenues.

Merck (MRK) demonstrated an increase in its Gross Margin from 0.7063 in 2022 to 0.7317 in 2023. This positive change implies improved efficiency or cost management strategies, earning Merck 1 point for this criterion. Additionally, reviewing the last 20 years reveals that Merck's gross margin has generally fluctuated but remains competitive. The 2023 margin surpasses the industry median of 0.7176, reflecting Merck's robust position within the sector.

Asset Turnover Ratio is growing?

Change in Asset Turnover ratio measures the efficiency of a company's use of its assets in generating sales revenue. Higher asset turnover indicates better performance.

Merck’s asset turnover increased slightly from 0.5518 in 2022 to 0.557 in 2023, giving it a positive mark in the Piotroski score for this criterion. Given that the increase was minimal but marked consistent relative historical performance as seen in its long-term asset turnover data, the improvement is commendable, but it shows room for optimizing asset use efficiency. Historically, the ratio has fluctuated but generally showed an upward trend in recent years, peaking at 0.5608 in 2019.