Last update on 2024-06-04

Rheinmetall (RHM.DE) - Piotroski F-Score Analysis for Year 2023 (Final Score: 4/9)

Rheinmetall (RHM.DE) undergoes a 2023 Piotroski F-Score analysis, scoring 4/9—assessing financial stability, profitability, and operating efficiency.

Short Analysis - Piotroski Score: 4

We're running Rheinmetall (RHM.DE) against the Piotroski 9-criteria scoring system to assess profitability, liquidity, and operating efficiency:

The Piotroski F-Score is a numerical score ranging from 0 to 9, designed to reflect a company's financial health. Using the Piotroski criteria, Rheinmetall (RHM.DE) achieved a score of 4 out of 9. Here's a breakdown: 1. Profitability is generally positive: they have a positive net income of €535 million and robust cash flow from operations (€743 million) for 2023, both adding points. However, ROA has declined, and their asset turnover ratio also dipped. 2. Liquidity and leverage show challenges: Their leverage ratio has increased, indicating higher financial risk. The current ratio and shares outstanding criteria did not provide additional points. 3. Operational efficiency is a mix: Gross margin has improved boosting profitability, but overall asset turnover has declined, suggesting some inefficiency.

Insights for Value Investors Seeking Stable Income

Rheinmetall’s Piotroski score of 4 suggests that the company has a mix of strengths and weaknesses. They show strong profitability and cash flows but have areas of concern, like increasing leverage and declining asset efficiency. This makes the stock neither strongly attractive nor highly risky. As an investor, it might be worth looking into the specific areas where the company is struggling and assess whether recent trends indicate it could turn around. Therefore, further detailed analysis and consideration of other investment factors would be prudent before making a decision.

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

Profitability of Rheinmetall (RHM.DE)

Company has a positive net income?

Net income is the total profit of a company after all expenses and taxes have been deducted from total revenue. It indicates profitability.

In 2023, Rheinmetall (RHM.DE) reported a net income of €535,000,000, which is positive. This marks a continuation of a growth trend in net income from previous years, particularly from €474,000,000 in 2022. Over the past 20 years, the company has experienced several fluctuations, including two years of negative net income in 2009 and 2020. However, recent trends indicate strong performance. Therefore, for the Piotroski score, we add 1 point for a positive net income.

Company has a positive cash flow?

Cash Flow from Operations represents the total cash generated by a company's core business activities. It is a crucial measure of a firm's financial health.

The Cash Flow from Operations (CFO) for Rheinmetall in 2023 is €743 million. This is a positive figure, indicating that the company generates sufficient cash flow from its core operating activities. Comparing this to the last twenty years, Rheinmetall's CFO has generally been positive, with only a few downturns such as in 2018 (€174 million). The 2023 CFO of €743 million is the highest in the past two decades, suggesting strong operational efficiency and a robust business model. Therefore, this trend is definitely positive, and the company scores 1 point for this criterion.

Return on Assets (ROA) are growing?

Evaluate the change in Return on Assets (ROA).

In 2023, Rheinmetall's ROA was 0.054, a decrease from 0.0599 in 2022. This trend is not favorable according to the Piotroski Analysis criterion for change in ROA. The lower ROA in 2023 compared to 2022 indicates lower efficiency in generating profit from assets. Historically, the company's ROA trendlines indicate fluctuating efficiency. In comparison to the industry median ROA, which stands at approximately 0.30, Rheinmetall's ROA is significantly lower, further reflecting its current underperformance in utilizing its assets to generate earnings. This trend results in a score of 0 for the change in ROA criterion according to Piotroski analysis.

Operating Cashflow are higher than Netincome?

The Operating Cash Flow criterion evaluates whether a company has the ability to generate more cash than its reported net income. It's a measure of sustainability and quality of earnings.

For Rheinmetall (RHM.DE), the Operating Cash Flow in 2023 was €743 million, while the Net Income was €535 million. Since the Operating Cash Flow is higher than Net Income, we add 1 point. Looking at the past 20 years, Operating Cash Flow for Rheinmetall varied, reaching a low of €102 million in 2014 and peaking at €743 million in 2023. Net Income over the same period shows variability as well, with negative values in some years (e.g., 2009 and 2020) and a peak in 2023. This trend indicates a strong cash generation capacity relative to net income, which is seen positively as it suggests that the company’s earnings quality is high, given the high operating cash compared to net income.

Liquidity of Rheinmetall (RHM.DE)

Leverage is declining?

Change in leverage evaluates the year-over-year change in the ratio of total debt to total assets and is essential for understanding shifts in a company's financial risk.

The leverage ratio for Rheinmetall increased from 0.064 in 2022 to 0.1284 in 2023. The increase indicates that the company's debt levels have grown relative to its assets. Over the past 20 years, the leverage ratio has shown fluctuations, with significant drops such as in 2016 (0.0343) and occasional increases like in 2014 (0.1419). Based on the recent year's data, leverage has reached one of its higher points in the given period, signaling an increased financial risk owing to higher debt dependency, hence this criterion scores 0 points.

Current Ratio is growing?

Explain the criterion for Rheinmetall (RHM.DE) and why it is important to consider

The Current Ratio measures a company's ability to pay short-term obligations with its short-term assets. A higher ratio indicates better short-term financial health.

Number of shares not diluted?

Change in shares outstanding is a crucial metric to assess because it can indicate whether a company is financing its operations through equity issuance, which can dilute existing shareholders' value.

Rheinmetall's outstanding shares increased from 43,360,000 in 2022 to 43,410,000 in 2023. This indicates a modest increase in outstanding shares, scoring 0 in this criterion. Though the increase is slight, any addition to the outstanding shares can dilute shareholders' equity, which might not be a favorable trend if overdone. Looking at the historical data over the last 20 years, Rheinmetall has generally been stable in its outstanding shares, witnessing significant changes primarily in 2005 and notable increments in subsequent years. However, this recent increase is small relative to historical variability, but continuous small dilutions can still be a concern over the long run.

Operating of Rheinmetall (RHM.DE)

Cross Margin is growing?

Gross margin represents the proportion of revenue that exceeds the cost of goods sold. It reflects the core profitability and efficiency of production. Assessment of its trend helps in gauging the company's financial health.

Rheinmetall's Gross Margin has experienced an increase, rising from 0.5272 in 2022 to 0.5486 in 2023. This improvement is a favorable indicator as it suggests enhanced profitability and operational efficiency. When comparing Rheinmetall's Gross Margin across the last two decades to the industry median, it is apparent that the company's figures have consistently surpassed the industry's average, indicating better-than-average cost control and value addition. Specifically, compared to the industry median of 0.3023 in 2023, Rheinmetall's Gross Margin is significantly higher, further highlighting its competitive strength. Therefore, for the Piotroski Score related to the change in Gross Margin, Rheinmetall scores 1 point due to this positive trend.

Asset Turnover Ratio is growing?

The change in asset turnover measures a company's efficiency in using its assets to generate sales. Ideally, a higher ratio suggests higher efficiency.

For Rheinmetall (RHM.DE), the asset turnover ratio in 2023 is 0.7246, compared to 0.81 in 2022. This indicates a decrease in asset turnover, suggesting the company has become less efficient in utilizing its assets to generate sales. Historically, the company had been maintaining a higher efficiency, with the ratio frequently exceeding 0.9 in years prior to 2017. Given these numbers, we set the point for this metric to 0.