Last update on 2024-06-14

NVIDIA (NVDA) - Piotroski F-Score Analysis for Year 2023 (Final Score: 5/9)

Evaluate NVIDIA's 2023 Piotroski F-Score Analysis: A detailed review highlighting a final score of 5/9 based on profitability, liquidity, and leverage criteria.

Short Analysis - Piotroski Score: 5

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

The Piotroski F-Score is a system used to evaluate a company's financial strength based on 9 criteria that encompass profitability, liquidity, and leverage. For NVIDIA (NVDA), the following assessment was made using this system: 1. **Profitability**: - Net income is positive, earning 1 point. - Positive cash flow from operations, earning 1 point. - Return on Assets (ROA) has decreased, earning 0 points. - Operating cash flow is higher than net income, earning 1 point. 2. **Liquidity**: - Leverage has increased, earning 0 points. - Current ratio has decreased, earning 0 points. - Number of shares has decreased, earning 1 point. 3. **Operating Efficiency**: - Gross margin has decreased, earning 0 points. - Asset turnover ratio has decreased, earning 0 points. In total, NVIDIA achieves a Piotroski F-Score of 5 out of 9, indicating a mixed financial health with strengths in cash flow and profitability, but concerns in asset management and leverage.

Insights for Value Investors Seeking Stable Income

With a Piotroski F-Score of 5, NVIDIA shows some strengths in its profitability and cash flow but faces challenges with operating efficiency and leverage. A score of 5 suggests that while the company has a solid foundation, there are some financial areas that need improvement. Investors might consider looking further into NVIDIA’s strategic plans to address its declining efficiency and increased leverage. If you prefer a balanced approach and are confident in NVIDIA's long-term growth potential and ability to overcome these challenges, it could be a stock worth holding or purchasing. However, if you prioritize strong, unambiguous financial health, it may be advisable to observe NVIDIA's performance for a while before making a substantial investment.

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

Profitability of NVIDIA (NVDA)

Company has a positive net income?

Net income indicates how profitable a company is over a certain period. It turns positive revenue minus expenses into shareholder equity, influencing investor confidence and stock prices.

In 2023, NVIDIA reported a net income of $4.368 billion. Given that this figure is positive, 1 point is awarded according to the Piotroski Analysis. Comparing this value to the last 20 years, we notice significant growth since negative and flat values in the mid-2000s, showcasing robust profitability and financial health. For instance, NVIDIA's net income rose from $90.799 million in 2003 to a peak of $9.752 billion in 2022, before stabilizing at $4.368 billion in 2023. This trend is particularly impressive considering past disruptions and cements NVIDIA's stature in the tech market, signaling a strong profitability phase.

Company has a positive cash flow?

A positive CFO indicates the company's core business operations are generating cash, vital for sustainability and growth.

In 2023, NVIDIA’s Cash Flow from Operations (CFO) is $5,641,000,000. This is positive, adding 1 point according to the Piotroski Analysis criteria. Reviewing the historical data, we observe a general upward trend in NVIDIA's CFO over the past two decades. For instance, in 2003, the CFO was a mere $265M compared to $9.1B in 2022, and a dip to $5.64B in 2023. Although there was a significant decline from 2022 to 2023, the sustained positive CFO trend underscores robust cash-generating capabilities from core operations. This trend bodes well for NVIDIA's financial health and growth prospects.

Return on Assets (ROA) are growing?

The change in Return on Assets (ROA) indicates the efficiency with which a company utilizes its assets to generate profit. An increasing ROA suggests that the company is improving in managing its assets to become more profitable, a positive signal for investors.

NVIDIA’s ROA decreased from 0.2673 in 2022 to 0.1023 in 2023, indicating a decline in asset profitability. This shift implies that the company was less efficient in using its assets to generate earnings in 2023 compared to 2022. The downward trend in ROA could raise concerns among investors about NVIDIA’s operational efficiency and its capacity to maximize returns on its assets. This decline is particularly significant considering the median ROA for the industry, which suggests that NVIDIA might be underperforming relative to its peers. Consequently, the Piotroski F-score assigns 0 points for this criterion, highlighting a critical area for potential improvement.

Operating Cashflow are higher than Netincome?

Operating Cash Flow should be higher than Net Income to show that the company generates enough cash to sustain operations.

For NVIDIA (NVDA), in 2023, the Operating Cash Flow is $5.64 billion, while the Net Income is $4.37 billion. This is a positive indicator for NVIDIA as the Operating Cash Flow is indeed higher than the Net Income, signifying that the company generates sufficient cash from its core operations to cover its net earnings. Over the past 20 years, the Operating Cash Flow has generally shown an increasing trend, especially noticeable from 2017 onwards, where it rose from $1.67 billion to $9.1 billion in 2022 before settling at $5.64 billion in 2023. In contrast, net income, which also exhibited growth, peaked at $9.75 billion in 2022 before declining to $4.37 billion in 2023. This consistent surplus of operating cash flow over net income strengthens the financial stability of NVIDIA, making it a favorable trend.

Liquidity of NVIDIA (NVDA)

Leverage is declining?

The Change in Leverage criterion examines if there is a reduction in a company’s financial leverage, indicating improved financial stability and less risk for creditors.

In comparing the leverage ratios, it is evident that NVIDIA’s financial leverage has increased from 0.2645 in 2022 to 0.2575 in 2023. Given this rise in leverage, we must consider it a negative signal for the Piotroski analysis, and therefore, no point is added in this instance. Historical leverage figures reveal fluctuating leverage trends over the last 20 years, with intermittent increments and reductions suggesting periods of strategic borrowing and debt management. Specifically, periods like 2008, 2011, and multiple entries in the 2012-2016 range presenting 0.0 or near-zero values indicate strategic debt minimization in certain years. Contrastingly, recent periods, especially from 2020 onwards, indicate a gradual build-up in leverage, signaling evolving corporate leverages strategies influenced by possibly large investments or acquisitions needs.

Current Ratio is growing?

The Current Ratio compares a company's current assets to its current liabilities, assessing liquidity. A higher ratio indicates better financial health.

In 2023, NVIDIA's Current Ratio decreased to 3.5156 from 6.6503 in 2022. This significant decrease suggests a decline in short-term liquidity. Crucially, though still above the industry median for 2023 (3.4213), the trend is concerning. Historically, NVIDIA's Current Ratio fluctuated, peaking in 2018 at 8.0269. Given the 2023 decline, this criterion scores 0, signaling caution.

Number of shares not diluted?

Outstanding Shares represent the total shares currently owned by shareholders. A decrease is often viewed positively as it may indicate share repurchase programs.

In 2023, NVIDIA's outstanding shares amounted to 2,487,000,000, compared to 2,496,000,000 in 2022. This represents a decrease, which is typically a positive indicator as it suggests that the company may be engaging in share repurchase programs, reducing the number of shares available, and potentially increasing the value of remaining shares. Thus, we assign 1 point to this criterion. Historically, NVIDIA has had fluctuating outstanding shares, with notable peaks and troughs, but the recent decrease in 2023 is a favorable trend.

Operating of NVIDIA (NVDA)

Cross Margin is growing?

Gross margin is a critical indicator of a company's operational efficiency. It shows the percentage of revenue exceeding the cost of goods sold, allowing management, investors, and analysts to understand how effectively a company is generating profit from sales.

In 2023, NVIDIA's gross margin stands at 56.93%, a decline from 64.93% in 2022. This indicates a decrease in profitability at the gross level, by nearly 12.3% year-over-year. Examination of the data spanning the last twenty years shows fluctuations in NVIDIA's gross margins. However, a particular observation reveals that from 2012 to 2013, NVIDIA's gross margins were significantly higher than in previous years, consistently staying above 50%. Comparatively, it’s crucial to note that NVIDIA's gross margin in 2023 remains above the industry median of 49.19%. This suggests that despite the decline, NVIDIA is still more efficient than many of its peers in converting sales into profits. Nevertheless, due to the observed decrease, NVIDIA earns a score of 0 points for this criterion.

Asset Turnover Ratio is growing?

The Asset Turnover ratio quantifies how efficiently a company uses its assets to generate revenue. A higher ratio denotes better performance.

Upon evaluating the figures, the Asset Turnover ratio for NVIDIA has decreased from 0.7376 in 2022 to 0.6319 in 2023. This marks a reduction, translating to a score of 0 for this criterion. Historically, per the provided data over 20 years, NVIDIA exhibited an optimal ratio of 1.3407 in 2006, with noticeable declines thereafter, particularly bottoming out at 0.5792 in 2021 before slight recovery attempts. This persistent reduction signifies challenges in asset utilization efficiency.