Last update on 2024-06-07

Open Text (OTEX) - Piotroski F-Score Analysis for Year 2023 (Final Score: 5/9)

Analyze Open Text Corporation's Piotroski F-Score for 2023 with a final score of 5/9. Learn about the company's financial health, profitability, and overall performance.

Short Analysis - Piotroski Score: 5

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

The Piotroski F-Score is used to assess a company's financial health based on nine criteria surrounding profitability, liquidity, and operational efficiency, earning a score from 0 to 9. Open Text (OTEX) has a Piotroski Score of 5, suggesting moderate financial health. Key positive points include maintaining positive net income, cash flow from operations, operating cash flow surpassing net income, and an increase in gross margin. However, the company has faced challenges such as a decline in return on assets, a rise in leverage, a drop in the current ratio, and reduced asset turnover, indicating some financial instability and inefficiency.

Insights for Value Investors Seeking Stable Income

Based on the Piotroski analysis, Open Text (OTEX) demonstrates some strengths, such as good operational cash flow and profitability, but also has areas of concern like increased leverage and decreased asset efficiency. With a score of 5, the company shows average financial health. Therefore, potential investors should exercise caution and conduct further in-depth analysis before making investment decisions, particularly focusing on the company's long-term debt strategy and operational efficiency trends.

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

Profitability of Open Text (OTEX)

Company has a positive net income?

Net income is a crucial criterion as it reveals if the company is profitable in the current fiscal year.

For 2023, Open Text (OTEX) reported a net income of $150.379 million. This figure being positive adds 1 point to the Piotroski score, reflecting profitability. Diving deeper into historical data, the net income has fluctuated over the last two decades, showing a general growth trend until 2017 where exceptional performance was noted with $1.03 billion. However, recent years show variability, with the 2023 figures representing a significant drop from a peak of $397.090 million in 2022. Despite this drop, maintaining positive earnings is a favourable indicator for sustainable operations.

Company has a positive cash flow?

Cash Flow from Operations (CFO) represents the cash inflows and outflows from core business operations and is a key indicator of a company's ability to generate sufficient cash to maintain and grow operations without relying on external financing.

In 2023, Open Text (OTEX) reported a CFO of $779,205,000, which is positive. Over the past 20 years, the company's CFO has been consistently positive, showing a strong upward trend from $40,019,000 in 2003 to a peak of $981,810,000 in 2022. Despite a slight decline from 2022 to 2023, the figure remains robust. This positive and generally increasing CFO is indicative of solid operational performance and the ability to generate sufficient cash flow to support business needs and growth. Therefore, this criterion earns OTEX 1 point.

Return on Assets (ROA) are growing?

Return on Assets (ROA) evaluates a company's efficiency in generating profits from its assets. A higher ROA indicates better asset utilization.

In 2023, Open Text's ROA is 0.011, down significantly from 0.0401 in 2022. This decline indicates less efficient asset utilization, translating to potential operational issues or lower profitability. Considering a ROA of 0.6741 as the industry median in 2023 further underscores Open Text's lagging performance. Over the past 20 years, the company has seen fluctuations in operating cash flows, with peaks and troughs. Despite some high cash flows, the recent ROA decrease raises concerns. Thus, for Piotroski criteria, it scores 0 for ROA change.

Operating Cashflow are higher than Netincome?

The criterion assesses whether Operating Cash Flow (OCF) exceeds Net Income, indicating high earnings quality and cash-based profitability.

In 2023, Open Text (OTEX) reported an Operating Cash Flow of $779.21 million, significantly higher than its Net Income of $150.38 million, earning a Piotroski score of 1 in this criterion. This trend is positive, demonstrating robust cash-based earnings and operational efficiency. Historically, Open Text has mainly seen its OCF surpass Net Income, with few exceptions, indicating consistent high earnings quality over the years.

Liquidity of Open Text (OTEX)

Leverage is declining?

Change in Leverage is a key indicator that provides insight into a company's financial health. Leverage measures the extent to which a company is using borrowed money. It is calculated by dividing total liabilities by shareholder equity. A decrease in leverage would generally point towards stronger financial stability, as it suggests a reliance more on equity rather than debt, whereas an increase might raise concerns about the company's risk exposure and could indicate potential solvency issues.

The Leverage for Open Text (OTEX) has increased from 0.4331 in 2022 to 0.5169 in 2023. This suggests an increased reliance on debt financing. Evaluating the company's leverage trend over the last 20 years reveals a significant rise in recent times, particularly evident in 2023. Back in 2006, the leverage was as low as 0.0193, then saw a substantial dip in the mid-2000s before stabilizing slightly in the later years, but trending upward significantly again. These fluctuations indicate an evolving approach in OTEX’s financial strategy, possibly responding to changes in the business environment or internal growth imperatives. Overall, the increase in leverage to 0.5169 drops a point from the criteria, considering it as a negative sign for the company’s financial robustness. Analyzing these figures, it is clear that current decisions are pushing the company towards higher debt dependency, which investors should monitor closely.

Current Ratio is growing?

The Current Ratio is a measure of a company's ability to cover its short-term liabilities with its short-term assets. Understanding this ratio helps assess liquidity.

Analyzing Open Text's Current Ratio between 2022 and 2023 reveals a decrease from 1.5565 to 0.7067. This significant drop indicates a diminishing ability for OTEX to cover its short-term liabilities with its short-term assets, which is concerning. Compared to the industry median of 1.7519 in 2023, OTEX's Current Ratio of 0.7067 represents a notably weaker liquidity position. This downward trend could raise red flags for investors regarding the company's short-term financial health, ultimately resulting in a score of 0 for this criterion.

Number of shares not diluted?

Change in Shares Outstanding is a valuable metric that indicates whether a company is diluting shareholder value by issuing more shares or enhancing it by buying back shares.

In 2023, Open Text's outstanding shares decreased to 270,299,000 from 271,271,000 in 2022. This reduction in outstanding shares is generally a positive indicator, as it often implies that the company is engaging in share buybacks. Compared to the trend over the past two decades, where the outstanding shares consistently increased from 165,572,432 in 2003 to 272,533,000 in 2021, this marks a positive shift. Thus, 1 point is added for this criterion.

Operating of Open Text (OTEX)

Cross Margin is growing?

Change in Gross Margin is a fundamental criterion in evaluating a company's financial health, reflecting the efficiency and profitability of its production process. An increasing Gross Margin indicates improved profitability relative to production costs, showcasing effective cost management and pricing power.

For Open Text (OTEX), the Gross Margin has increased from 0.696 in 2022 to 0.7064 in 2023, marking a positive shift. This increase of approximately 1.5% is a good indicator as it shows that OTEX has managed to enhance its profitability by better controlling production costs or successfully increasing prices. Historical data depicting fluctuations in gross margin over the last 20 years shows that a 2023 Gross Margin of approximately 70.64% is substantially higher than the industry median of 67.41%. This consistent outperformance compared to the industry median highlights OTEX's strong position and effective operational strategies. This criterion earns OTEX a full point according to the Piotroski Analysis.

Asset Turnover Ratio is growing?

Asset turnover measures the efficiency of a company's use of its assets to generate sales revenue. It is important to consider because it reflects how well management is using the company’s assets.

For Open Text (OTEX), the asset turnover has decreased from 0.3531 in 2022 to 0.329 in 2023, reflecting a decline in efficiency. In quantitative terms, this is a reduction of approximately 6.83%. Over the last 20 years, asset turnover has shown a general downward trend, which could be concerning if this indicates systemic inefficiencies in asset utilization. Therefore, for the Piotroski score, Open Text will receive 0 points for this criterion.