Last update on 2024-06-07

Nortech Systems (NSYS) - Piotroski F-Score Analysis for Year 2023 (Final Score: 7/9)

Nortech Systems (NSYS) - Piotroski F-Score Analysis for 2023, highlights a score of 7/9 indicating strong financial stability. Dive in for detailed criteria analysis.

Short Analysis - Piotroski Score: 7

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

The Piotroski F-Score is a scale from 0 to 9 used to gauge a company's financial health. A score of 7 for Nortech Systems (NSYS) is strong, showing good profitability, with a positive net income of $6,874,000 in 2023 and favorable cash flow. The company's Return on Assets (ROA) has improved, though it still lags behind industry norms. Debt leverage has decreased, and liquidity has increased, with a growing current ratio. However, there are some areas of concern, such as the lower operating cash flow compared to net income and the decrease in the asset turnover ratio. Additionally, the complete absence of outstanding shares in 2023 suggests potential major structural changes that require further investigation.

Insights for Value Investors Seeking Stable Income

Given the Piotroski score of 7, Nortech Systems (NSYS) appears to be a fundamentally sound investment. Key positives include strong profitability, improved liquidity, and reduced financial leverage. Investors should note, however, that recent changes such as the reduction to zero outstanding shares and fluctuating asset turnover warrant further scrutiny. Overall, Nortech Systems is worth considering, but investors should conduct deeper due diligence to understand the implications of the company's structural changes and areas needing improvement.

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

Profitability of Nortech Systems (NSYS)

Company has a positive net income?

The criterion checks if the current year's net income is positive, signifying profitability.

The net income for Nortech Systems (NSYS) in 2023 is $6,874,000, which is positive. Over the past 20 years, NSYS has experienced fluctuations in profitability, including negative net income years, such as 2008 and 2015. However, a positive net income for 2023 is a strong indicator of the company's financial health and adds 1 point to its Piotroski score.

Company has a positive cash flow?

Cash Flow from Operations (CFO) indicates whether a company is generating enough cash flow from its core business activities.

Nortech Systems (NSYS) reported a CFO of $1,769,000 in 2023, a positive figure. This is a favorable trend as it implies that the company is generating sufficient cash from its core operations. Throughout the last 20 years, the company's CFO has fluctuated significantly. Notably, CFO was negative several times, such as in 2003 (-$288,460), 2008 (-$853,495), 2011 (-$874,111), 2019 (-$4,540,000). However, recent years have shown a positive trend, with $5,402,000 in 2022 before dropping to $1,769,000 in 2023. Consequently, for the Piotroski analysis, NSYS earns a 1 point for positive cash flow in 2023 due to its positive CFO.

Return on Assets (ROA) are growing?

The Change in Return on Assets (ROA) measures a company's ability to turn assets into profits over a period. A higher ROA indicates better efficiency.

In 2023, Nortech Systems (NSYS) reported a ROA of 0.095, up significantly from 0.0294 in 2022. This increase is a positive trend, showing a noteworthy enhancement in the company’s efficiency at generating profits from its assets. Over the last 20 years, however, NSYS has mostly lagged behind the industry median, which has remained relatively stable around 0.21-0.29. This increase, though promising, still leaves NSYS below the industry median. Thus, while the ROA increase in 2023 earns 1 point in the Piotroski Analysis, it underscores the need for sustained improvement to close the gap with industry peers.

Operating Cashflow are higher than Netincome?

The Operating Cash Flow criterion checks if the company's operating cash flow is higher than its net income. This is important because it indicates that the company is generating ample cash to sustain operations, rather than relying on accounting adjustments.

In 2023, Nortech Systems reported an operating cash flow of $1,769,000 compared to a net income of $6,874,000. This situation reveals that the operating cash flow is significantly lower than the net income for the year. Consequently, Nortech Systems does not earn a point for this criterion in Piotroski's analysis. Analyzing the last 20 years' trend, the operating cash flow and net income have shown variability. For instance, the operating cash flow consistently surpassed net income in 2005 ($5,120,151 vs. $928,781) and 2006 ($2,842,531 vs. $1,311,778), highlighting stronger operational efficiency then. However, recent years, especially 2023, show a disconnect, meaning the company's reported profits are not effectively converting into operating cash flow. This could be a sign of earnings management or increased accruals, which is concerning for investors relying on cash-based profitability.

Liquidity of Nortech Systems (NSYS)

Leverage is declining?

This criterion evaluates whether the company's leverage, or financial debt relative to its equity, has decreased over the past fiscal year, as lower leverage indicates a stronger balance sheet and less financial risk.

Nortech Systems' leverage has decreased from 0.2152 in 2022 to 0.1702 in 2023. This is a positive indicator, dropping from 21.52% to 17.02%. The company appears to be reducing its reliance on debt, lowering financial risk and potentially contributing to a stronger balance sheet. Given data from recent years, notably a peak leverage of 31.27% in 2019, this reduction aligns well with a broader trend of improved financial health. Therefore, this criterion scores 1 point, suggesting a favorable shift in leverage. This signifies a robust commitment to debt reduction which strengthens financial stability.

Current Ratio is growing?

The change in current ratio is a measure of a company's ability to cover its short-term liabilities with its short-term assets, indicating liquidity and short-term financial health. This ratio is important for evaluating the risk of financial distress within a year.

Analyzing the current ratio for Nortech Systems (NSYS) from 2.0782 in 2022 to 2.2118 in 2023, we observe an increase. The uptrend signifies improved liquidity and the firm's enhanced capability to manage its short-term obligations. The rising current ratio is a favorable indicator, implying effective short-term financial health. Notably, this also surpasses the industry median current ratio for most of the previous years, situating Nortech in a relatively stronger position within its industry. Hence, this criterion is positively met with 1 point assigned.

Number of shares not diluted?

Change in shares outstanding measures how the number of shares issued by a company has shifted over time. It's an important indicator because increasing shares can dilute ownership, while decreasing shares can indicate buybacks, which might signal management's confidence in the company's future prospects.

The Outstanding Shares in 2022 were 2,685,378 compared to 0 in 2023. A sharp decrease to zero shares outstanding in 2023 indicates that the company has potentially undergone significant structural changes, such as going private or executing a consolidation plan. Assessing the 20-year history, the shares have largely varied around the 2.6 to 2.7 million marks. Decreasing shares are typically positive, such as through buybacks which return value to shareholders, earning the company 1 point in the Piotroski Analysis. However, the complete drop to zero warrants a deeper investigation beyond share counts.

Operating of Nortech Systems (NSYS)

Cross Margin is growing?

Gross Margin measures a company's financial health and ability to generate profit relative to revenue. An increasing Gross Margin is a positive sign for investors.

For Nortech Systems (NSYS), the Gross Margin increased from 0.1527 in 2022 to 0.1658 in 2023, representing an upward trend. This improvement indicates that the company is becoming more efficient in converting revenue into actual profit, which is vital for sustainability and growth. Over the last 20 years, Nortech Systems' Gross Margin has seldom reached such levels, making this a noteworthy achievement. However, it is essential to mention that despite the increase, the company’s Gross Margin remains significantly below the industry median of 0.2104 in 2023. While this gap highlights room for improvement, the positive trend within the company merits a score of 1 for Gross Margin in the Piotroski Analysis.

Asset Turnover Ratio is growing?

Change in asset turnover is crucial as it shows how efficiently a company is generating sales from its assets.

In 2023, Nortech Systems (NSYS) had an Asset Turnover ratio of 1.9262 compared to 1.9633 in 2022. Thus, the Asset Turnover decreased, scoring 0 points based on this criterion. The declining trend from 1.9633 to 1.9262 indicates slightly reduced efficiency in asset utilization to generate sales. Over the last two decades, although there were fluctuations, recent years have seen relatively stable figures close to 2.0, suggesting that while efficiency has been maintained, there could be slight room for improvement in optimizing asset usage further. Historical data reveals peaks in asset turnover ratios which the company might explore replicating to enhance operational efficiency further.