Last update on 2024-06-05

Organon (OGN) - Piotroski F-Score Analysis for Year 2023 (Final Score: 4/9)

Organon (OGN) Piotroski F-Score 2023: Analysis of financial strength with a score of 4/9, including profitability, liquidity, and leverage criteria.

Short Analysis - Piotroski Score: 4

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

We've assessed Organon (OGN) against the Piotroski F-Score criteria, which evaluates a company's financial strength on a scale of 0 to 9 based on profitability, liquidity, and operating efficiency. Organon scored a 4 out of 9: Profitability: The company has a positive net income and cash flow from operations, which are good signs. However, the declining trend in cash flow and mixed signals regarding ROA (Return on Assets) compared to the industry average are concerning. The operating cash flow is lower than net income, indicating potential inefficiencies. Liquidity: Organon has shown positive leverage management by reducing its leverage ratio. The current ratio, a measure of short-term financial stability, was not assessed in our detailed analysis. Operational Efficiency: There were no points awarded for change in shares outstanding due to a slight increase, and negative trends were noted in gross margin and asset turnover, indicating inefficient operations. Overall, these metrics suggest a mixed financial health for Organon, highlighting both strengths and areas for improvement.

Insights for Value Investors Seeking Stable Income

Based on the Piotroski F-Score analysis, Organon (OGN) has both positive and negative attributes. It has a middling score of 4 out of 9, indicating moderate financial health. The positive net income and cash flow are encouraging, but the declining trends in cash flow and operational effectiveness raise concerns. If you are considering investing, it might be worth exploring the company further to understand the reasons behind these declines and to gauge the potential for recovery and growth. Additionally, comparing Organon’s performance to its industry peers would offer a better perspective on its competitive position. Caution is advisable given the mixed findings.

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

Profitability of Organon (OGN)

Company has a positive net income?

Netincome measures a company's profitability, important for assessing overall financial health.

In 2023, Organon's net income was $1,023,000,000, which is positive, adding 1 point to the Piotroski Score. Historically, net income has fluctuated, peaking at $3,218,000,000 in 2019 and hitting a low in 2022. The positive net income in 2023, following a slight improvement from 2022, is a good sign, indicating potential recovery and profitability for the company.

Company has a positive cash flow?

The criterion assesses whether Organon (OGN) generates positive cash flow from operations, indicating financial health and operational efficiency.

In 2023, Organon (OGN) reported cash flow from operations (CFO) of $799 million, which is positive and earns it 1 point in the Piotroski metric. However, the declining trend in CFO over the past few years, from $3.68 billion in 2018 to $799 million in 2023, is concerning. Operating cash flow is a critical measure of a company's ability to maintain and grow operations without relying on external financing. This stark decline suggests that Organon has faced challenges in maintaining its operational efficiency and profitability. It will be important for the company to address these issues to ensure long-term financial stability.

Return on Assets (ROA) are growing?

This criterion focuses on changes in Return on Assets (ROA), which measures how efficiently a company is using its assets to generate profit. An increasing ROA indicates improved efficiency in asset utilization.

For Organon (OGN), the ROA increased from 0.0848 in 2022 to 0.0889 in 2023. This improvement indicates the organization’s enhanced ability to generate profit from its assets. For a comprehensive view, we must consider that the operating cash flow has shown a mixed trend with a notable decrease from $857M in 2022 to $799M in 2023, although prior years saw significantly higher values. This mixed signal underscores the importance of monitoring both ROA and cash flow. Meanwhile, the industry's median ROA for 2023 stands at 0.7176, suggesting that while OGN's efficiency has improved, it is still substantially below the industry median. This context provides a better understanding of OGN's performance relative to its peers. Overall, the ROA criterion adds 1 point due to the year-on-year increase, reflecting a positive but moderated trend.

Operating Cashflow are higher than Netincome?

Operating Cash Flow being higher than Net Income is pivotal for understanding the quality and authenticity of a company's earnings. A higher operating cash flow compared to net income indicates that the company is generating enough cash to support its net income, reflecting a solid cash-generating capability and reducing the likelihood of earnings manipulation. It also showcases the company’s efficiency in its core business operations.

In the case of Organon (OGN), the 2023 Operating Cash Flow stands at $799 million, while the Net Income is $1,023 million. As the Operating Cash Flow is lower than the Net Income, it does not meet this crucial criterion. Over the past seven years, there is a declining trend in Operating Cash Flow, from $3,419 million in 2017 to just $799 million in 2023. This decrease signifies potential inefficiencies in core operations and raises concerns about the sustainability of earnings. Meanwhile, net income has also shown volatile trends, with a peak in 2019 at $3,218 million and a recent increase in 2023. The data indicates that while the company's net income has shown some recovery, its operating cash flow does not corroborate this optimism, potentially flagging risks in earnings quality.

Liquidity of Organon (OGN)

Leverage is declining?

Leverage, the total debt divided by total assets, assesses financial risk. It's key to risk management and informed decision-making.

Examining Organon's leverage over recent years reveals a decrease from 0.8129 in 2022 to 0.7257 in 2023, marking a positive trend in minimising financial risk. For clarity, leverage, a ratio derived from total debt divided by total assets, effectively gauges the extent of a company's financial risk-taking. For Organon, the dip in leverage suggests an improvement in capital structure; the company is experiencing reduced financial constraints, lowering its overall risk and likely enhancing its credit rating. Historical data from 2017 through 2023 illustrates a slight bend toward disciplined financial management. In this context, Organon gains 1 point, reaffirming prudent leverage management. It's essential to note, however, for balanced analysis, that a consistently low leverage isn't universally advantageous; understanding industry norms, company growth, and market conditions is paramount.

Current Ratio is growing?

Explain the criterion for Organon (OGN) and why it is important to consider

The Current Ratio is a key liquidity measure, indicating a firm's ability to cover its short-term liabilities with short-term assets. The evaluation is essential to assess whether Organon (OGN) can easily meet its short-term obligations and is financially stable.

Number of shares not diluted?

The Change in Shares Outstanding criterion under Piotroski's analysis examines whether the company has reduced its share count from the previous year. It's significant because a reduction typically indicates that the company is repurchasing its shares, a potential sign of management's confidence and shareholder value creation.

In the case of Organon (OGN), the Outstanding Shares increased from 254,082,000 in 2022 to 255,239,000 in 2023. This represents an increase of 1,157,000 shares. Specifically, in this context, the company’s outstanding shares grew rather than decreased, which means no points can be awarded for this criterion. Generally, an increase in shares outstanding could suggest potential dilution for current shareholders, though the relatively small percentage hike (about 0.46%) may not significantly impact the company’s financial stability or investor's value short-term. Historical data reveals fluctuations but a general upward trend over the last seven years, registering a growth from 253,130,375 outstanding shares in 2018 to 255,239,000 in 2023.

Operating of Organon (OGN)

Cross Margin is growing?

Gross Margin is a key metric in evaluating profitability, indicating what portion of revenue exceeds the company’s cost of goods sold. It reflects a firm's operational efficiency and pricing strategy.

The Gross Margin for Organon (OGN) has decreased from 0.6284 in 2022 to 0.5984 in 2023. This is a negative trend as it suggests that the company's operational efficiency or pricing strategy has worsened. Further, when considering the industry median Gross Margin, which has risen from 0.7 in 2022 to 0.7176 in 2023, it highlights that Organon is currently underperforming relative to its peers. This decreasing trend earns a score of 0 in the Piotroski analysis.

Asset Turnover Ratio is growing?

Asset turnover ratio measures the efficiency of a company's use of its assets to generate sales. The higher the ratio, the better the company is performing.

Organon (OGN) shows a decrease in asset turnover from 0.5707 in 2022 to 0.5443 in 2023. This decline suggests that the company's efficiency in using its assets to generate sales has decreased. It's important to note that this metric has been on a downward trend since 2019, declining from 0.7392 down to 0.5443 in the latest year. This consistent decrease raises concerns about the company's operational effectiveness and management efficiency in asset utilization. As a result, 0 points will be awarded for this criterion.