Last update on 2024-06-07

Paychex (PAYX) - Piotroski F-Score Analysis for Year 2023 (Final Score: 9/9)

Piotroski F-Score analysis of Paychex (PAYX) for 2023 reveals strong financial health with a perfect 9/9 score, reflecting robust profitability and efficiency.

Short Analysis - Piotroski Score: 9

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

The Piotroski F-Score is a measure that evaluates a company's financial position, focusing on three areas: profitability, liquidity, and operating efficiency. The score ranges from 0 to 9, with a higher score indicating stronger financial health. Paychex (PAYX) received a perfect score of 9, suggesting it is a strong investment opportunity due to its positive net income, growing cash flow from operations, increasing return on assets, higher operating cash flow than net income, declining leverage, growing current ratio, stable share count, increasing gross margin, and improving asset turnover.

Insights for Value Investors Seeking Stable Income

Given Paychex's perfect Piotroski F-Score of 9, it appears to be a robust financial investment. The company excels in profitability, liquidity, and efficiency measures, making it attractive to investors. While some of its metrics lag slightly behind industry medians, its consistent financial growth paints a positive outlook. Overall, Paychex is worth considering for investment based on these strong financial indicators.

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

Profitability of Paychex (PAYX)

Company has a positive net income?

Net income (Netincome) is a company's total earnings minus expenses. Positive net income is a crucial sign of financial health and profitability.

For the fiscal year 2023, Paychex (PAYX) reported a positive net income of $1,557,300,000. This indicates that the company is profitable and successfully generating more revenue than its expenses. Over the past 20 years, Paychex has demonstrated a consistent trend of positive net income, barring some years with missing data (e.g., 2009, 2010, 2011, 2013, 2014). This positive performance adds 1 point in the Piotroski F-Score model, reflecting financial robustness and profitability.

Company has a positive cash flow?

Cash Flow from Operations (CFO) measures the cash a company generates from its regular business operations.

In 2023, Paychex's Cash Flow from Operations (CFO) stands at $1,699,400,000, which is positive. This strong positive cash flow indicates that the company is effectively turning its revenues into actual cash, which is essential for maintaining liquidity and funding its operations, investments, and potentially shareholder dividends. Over the last 20 years, there have been fluctuations in Paychex's CFO, with some years showing no data. However, recent trends, including the $1,505,500,000 in 2022 and the $1,260,300,000 in 2021, display a robust upward trajectory. Consistently positive and growing CFO over the years is a good sign for the company's financial health and operational efficiency.

Return on Assets (ROA) are growing?

Change in ROA compares the Return on Assets from one year to the next

In 2023, Paychex's ROA increased to 0.1543 from 0.1446 in 2022. This positive trend garners 1 point in the Piotroski score. The incremental improvement in ROA demonstrates effective asset usage to generate earnings. Historically, the company's ROA fluctuates, but remains below the industry median, which was 0.3223 in 2023. A higher-than-previous ROA is a healthy indicator for investors, signifying better operational efficiency.

Operating Cashflow are higher than Netincome?

Criterion examines if operating cash flow exceeds net income over the same period.

For Paychex (PAYX), the operating cash flow in 2023 amounts to $1.699 billion, while the net income stands at $1.557 billion. Since the operating cash flow is indeed higher than the net income, this criterion scores 1 point for the company. This positive trend suggests that Paychex is generating ample cash from its operations to cover its net earnings, which is a strong indicator of financial health. Historically, a closer look at the company's cash flow from operations over the past 20 years reveals a consistent upward trend, showing resilience and growth despite economic fluctuations. This is evident from data points such as 2003's $373.7 million, growing steadily to 2023's $1.699 billion. Similarly, net income figures have also risen from $293.4 million in 2003 to the present figure.

Liquidity of Paychex (PAYX)

Leverage is declining?

The Change in Leverage criterion assesses whether a company's financial leverage, defined as total debt divided by total assets, has decreased year-over-year.

In 2022, Paychex reported a leverage ratio of 0.0906, which decreased to 0.0811 in 2023. Therefore, the leverage has decreased and this trend is positive, adding 1 point to the Piotroski score. A decreasing leverage ratio indicates a stronger balance sheet as the company is relying less on debt to finance its assets. Additional historical data shows that from 2003 to 2022, Paychex's leverage fluctuated but has been within a controlled range, showcasing prudent financial management. Notably, the leverage spiked to 0.1045 during 2020 but has since improved, reflecting a more conservative capital structure.

Current Ratio is growing?

The current ratio measures a company's ability to pay short-term liabilities with short-term assets.

Based on the provided figures, Paychex's current ratio increased from 1.2491 in 2022 to 1.2967 in 2023. This increase is a positive trend, indicating an enhanced liquidity position. Consequently, according to the Piotroski criteria, Paychex earns 1 point for this criterion. It’s noteworthy that the industry median current ratio in 2023 is 1.3723, which is slightly higher than Paychex's ratio. This might suggest that while Paychex's liquidity has improved, it still lags behind the industry median. Over the past 20 years, Paychex's current ratio has generally trended upwards, though it remains below the industry median in most years. This consistent improvement is a promising indicator for potential investors, showcasing the company’s steady progress in managing its short-term obligations effectively. The enhanced ratio can be attributed to either an increase in current assets or a reduction in current liabilities, reflecting prudent financial management.

Number of shares not diluted?

The change in shares outstanding helps evaluate if the company has been diluting shareholder value.

In comparing the outstanding shares in 2022 (360,600,000) to those in 2023 (360,400,000), there is a slight decrease, leading to an increase of only 200,000 shares. This downward movement is often perceived positively by investors as it indicates the company is not diluting the existing shareholders' value with additional shares. Therefore, a point is assigned for this criterion. A broader look into the data over the last 20 years shows fluctuating but generally stable shares outstanding. The trend depicted by the historical data reinforces that there have not been significant increases, suggesting effective management in maintaining shareholder value over the long term.

Operating of Paychex (PAYX)

Cross Margin is growing?

Change in Gross Margin reflects the company's efficiency in managing its production costs and can indicate potential profitability trends.

For Paychex (PAYX), the Gross Margin increased from 0.7059 in 2022 to 0.7098 in 2023. This is a positive trend, adding 1 point to the analysis. Historically, PAYX has had fluctuating gross margins, with highs near 0.7537 in 2003, but its recent consistency around 0.69-0.70 indicates a stable cost structure. When compared to the industry's median gross margin, consistently lower at around 0.32-0.43, PAYX's robust margins further underscore its strong competitive position in cost management and operational efficiency.

Asset Turnover Ratio is growing?

Asset Turnover compares revenue to assets, showing the efficiency of company assets in generating revenue.

For 2023, Paychex's Asset Turnover increased to 0.4962 from 0.4786 in 2022. This is a positive trend, indicating improving asset utilization. Given the gradual increases from 0.4348 in 2019 to 0.4962 in 2023, adding 1 point is justified due to consistent efficiency improvements over these years.