Last update on 2024-06-05

Sherwin-Williams (SHW) - Piotroski F-Score Analysis for Year 2023 (Final Score: 7/9)

Analyze the financial strength of Sherwin-Williams (SHW) in 2023 using the Piotroski F-Score. Discover SHW's robust 7/9 score highlighting strong profitability, liquidity, and operational efficiency.

Short Analysis - Piotroski Score: 7

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

The Piotroski F-Score helps determine a company's financial strength based on 9 criteria. Sherwin-Williams (SHW) scored 7 out of 9, indicating good financial health. Profitable with a 2023 net income of $2.39 billion, SHW also showed strong cash flow and an improving ROA. Operating cash flows exceeded net income, suggesting quality earnings. The leverage ratio improved, showing less debt, and shares outstanding decreased, hinting at buybacks. However, the current ratio fell, showing less liquidity, and asset turnover slightly dropped, hinting at reduced efficiency.

Insights for Value Investors Seeking Stable Income

Sherwin-Williams looks like a strong investment candidate with a high Piotroski score of 7. The company's consistent profit growth, strong cash flows, and reduced debt make it attractive. Although liquidity and efficiency saw minor declines, the overall financial health remains robust. It's worth considering for potential investment, but keeping an eye on liquidity and efficiency trends would be wise.

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

Profitability of Sherwin-Williams (SHW)

Company has a positive net income?

Net income is the profit of a company after all expenses and taxes have been deducted from the total revenue. It is a crucial indicator of financial health.

For Sherwin-Williams (SHW), the net income for the year 2023 stands at $2,388,800,000. This figure is indeed positive, which adds 1 point in the Piotroski analysis. Analyzing the last 20 years, SHW has demonstrated a strong upward trajectory in net income, exemplifying robust financial performance. The lowest net income reported was $332,058,000 in 2003, and the highest being the current $2,388,800,000. This consistent increase is a positive indicator for investors and showcases the company's ability to generate profits over the long term.

Company has a positive cash flow?

Cash Flow from Operations (CFO) measures the cash that a company generates from its regular business operations. It’s a crucial indicator of financial health.

In 2023, Sherwin-Williams (SHW) reported a CFO of $3,521,900,000, which is a positive figure. This indicates a strong capacity to generate cash from its core business activities, reflecting well on the company's operational efficiency. Notably, this CFO value represents an all-time high over the last two decades, surpassing the previous peak in 2020 of $3,408,600,000. The positive trend, especially following dips in 2021 and 2022, demonstrates resilience and potential for future growth, adding 1 point to the Piotroski Score.

Return on Assets (ROA) are growing?

Change in Return on Assets (ROA) over time is an important metric for evaluating a company's ability to generate profit from its assets. An increasing ROA indicates improved efficiency and profitability.

Sherwin-Williams (SHW) showed an increase in ROA from 0.0934 in 2022 to 0.1049 in 2023. This upward trend is a positive indicator of SHW's increased efficiency in generating profits from its assets. This improvement adds 1 point in the Piotroski Analyses and is a strong signal of financial health. Over the past 20 years, the operational cash flow data and the industry's median ROA illustrate that while SHW's ROA has been consistently lower than the industry median, the positive trend in 2023 suggests a potential catch-up with industry standards. Given the industry's median ROA of approximately 0.3018 in 2023, SHW still has room to grow but is making strides in the right direction.

Operating Cashflow are higher than Netincome?

The operating cash flow must be higher than net income to evaluate the quality of earnings.

In 2023, Sherwin-Williams' operating cash flow was $3,521.90 million compared to its net income of $2,388.80 million. This indicates that the company generates more cash from its operations than it reports in profits— a crucial point, as it shows that profits are supported by real cash flows rather than accounting adjustments. This trend has been evident over the years except in a few instances such as 2020, and it consistently supports the view of strong operational efficiency. Further, analyzing the last two decades, we observe significant improvements in operating cash flow juxtaposed with steadily increasing net income, underpinning robust operational health. Thus, based on this criterion, Sherwin-Williams would add 1 point in the Piotroski analysis.

Liquidity of Sherwin-Williams (SHW)

Leverage is declining?

The criterion evaluates the change in financial leverage of a company over a certain period, indicating risk and financing strategy.

In 2022, Sherwin-Williams (SHW) had a leverage ratio of 0.4915, while in 2023, the ratio fell to 0.4307. This decrease signals a reduction in the company's debt relative to its equity. Historically, leverage for SHW has fluctuated but has seen an upward trend over the past two decades. The highest leverage was observed in 2017 at 0.4953, whereas the lowest was in 2006 at 0.0584. The drop in 2023 marks a positive change for risk-averse investors, as it suggests improved financial stability and potentially lower financing risk. Overall, for this criterion, SHW earns 1 point.

Current Ratio is growing?

The Current Ratio measures a company's ability to pay off its short-term liabilities with its short-term assets. A higher ratio indicates greater liquidity.

The Current Ratio of Sherwin-Williams (SHW) decreased from 0.9911 in 2022 to 0.8319 in 2023, indicating a possible decline in liquidity. Comparing it to the industry median Current Ratio from the last 20 years, SHW has consistently trailed behind the industry’s performance. This year's ratio is significantly below the industry median of 1.9399. Therefore, the Piotroski score for this criterion is 0 due to the decrease in the Current Ratio.

Number of shares not diluted?

Change in Shares Outstanding measures the difference in the number of shares a company has issued over a specific period. A decrease often signifies share buybacks, which can indicate management's confidence in the company's future.

In comparing the Outstanding Shares of Sherwin-Williams (SHW) from 2022 to 2023, there is a decrease from 258,000,000 shares to 255,400,000 shares. This results in a decrease, which should add 1 point in the Piotroski Analysis. Over the span of the last 20 years, Sherwin-Williams has consistently reduced the number of outstanding shares from a peak of 440,784,956 in 2003 to 255,400,000 in 2023. This continuous trend of reducing outstanding shares suggests ongoing share buyback programs and can be interpreted as a positive signal reflecting management’s confidence in the company’s performance and its future profitability.

Operating of Sherwin-Williams (SHW)

Cross Margin is growing?

This criterion examines the change in gross margin from one year to the next. An increasing gross margin indicates improved profitability.

The Gross Margin for Sherwin-Williams (SHW) has increased from 0.421 in 2022 to 0.4667 in 2023. This indicates an improvement and suggests better profitability and cost management. Over the longer term, SHW's gross margin has shown variability but has generally been higher than the industry median. This consistent outperformance is a positive indicator and earns SHW a point for this criterion.

Asset Turnover Ratio is growing?

Change in Asset Turnover compares assets' efficiency in generating revenue over two periods. An increase indicates improved efficiency, adding to financial health.

In 2023, Sherwin-Williams (SHW) had an Asset Turnover of 1.0122, slightly lower than the 1.024 in 2022. This decrement suggests a minor reduction in efficiency in utilizing assets to generate revenue. Over the last 20 years, their Asset Turnover Ratio peaked at 1.9724 in 2015, demonstrating a robust period for the company. However, the more recent decline to 1.0122 in 2023 from 1.024 in 2022 indicates there is no improvement. Thus, for the Piotroski Analysis, this would result in a score of 0 for this criterion.