Last update on 2024-06-05

Synopsys (SNPS) - Piotroski F-Score Analysis for Year 2023 (Final Score: 9/9)

Deep dive into Synopsys (SNPS) Piotroski F-Score Analysis for 2023, scoring a perfect 9/9. Discover key financial insights and criteria met for investment evaluation.

Short Analysis - Piotroski Score: 9

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

The Piotroski F-Score assessment for Synopsys (SNPS) indicates a strong financial position with a perfect score of 9 out of 9. The company shows positive trends in profitability with a positive net income reported in 2023 and increasing Return on Assets (ROA). Liquidity has improved, evidenced by a growing current ratio, and there has been no share dilution, indicating strong earnings quality. Moreover, the company's Gross Margin and Asset Turnover Ratio have also improved. The only slight drawback is a small increase in leverage, though it remains low overall.

Insights for Value Investors Seeking Stable Income

Based on the excellent Piotroski F-Score of 9, it is recommended to consider Synopsys (SNPS) as a strong investment opportunity. The company demonstrates solid profitability, improved liquidity, and efficient operational management. However, potential investors should continue to monitor the leverage ratio and compare it with industry standards. Overall, SNPS appears to be a robust and undervalued investment.

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

Profitability of Synopsys (SNPS)

Company has a positive net income?

Net income measures the total profit of a company over a specific period, important to assess profitability.

In 2023, Synopsys (SNPS) reported a positive net income of $1,229,888,000. This not only earns it 1 point on the Piotroski score but also reflects its continued profitability. Over the last 20 years, Synopsys has shown resilience and growth with fluctuating net income, including periods of loss, particularly in 2005 with a negative net income of -$15,478,000. The ongoing upward trend, especially notable in recent years, signifies strong financial health.

Company has a positive cash flow?

The criterion checks whether the company's Cash Flow from Operations (CFO) is positive or negative. This is critical as positive CFO indicates a company's ability to generate adequate cash to maintain operations and potentially expand.

For the year 2023, Synopsys (SNPS) reported a Cash Flow from Operations (CFO) of $1,703,274,000, which is indeed positive. According to the Piotroski score method, a positive CFO scores a point. Over the last 20 years, Synopsys has shown a consistent upward trend in CFO, barring some fluctuations. The increasing trend illustrates robust operational efficacy and strong cash generation capabilities. Therefore, this criterion scores a 1, reflecting positively on the company's financial health.

Return on Assets (ROA) are growing?

Change in Return on Assets (ROA) refers to how effectively a company is generating profit from its assets. It measures how efficiently a company can manage its assets to produce profits.

The ROA for Synopsys (SNPS) increased from 0.1084 in 2022 to 0.1245 in 2023, reflecting an enhancement in their asset utilization efficiency. This increment of approximately 14.8% suggests that the company was more successful in converting its assets into profits in 2023 compared to 2022. Given that higher ROA indicates better profitability, adding one point for this improvement is justified. Moreover, when compared to the industry median ROA which was 0.715, Synopsys still lags significantly, implying that while there is progress, there's much room for improvement. Historical data suggests that in the last two decades, the industry has maintained a relatively high ROA, with the lowest being 0.5766 in 2014. Therefore, while the improvement in Synopsys's ROA is positive, aiming for industry standards should remain a goal.

Operating Cashflow are higher than Netincome?

This criterion compares Operating Cash Flow (OCF) to Net Income to assess earnings quality.

For Synopsys, the Operating Cash Flow for 2023 is $1,703,274,000, while the Net Income is $1,229,888,000. As the OCF is higher than Net Income, it indicates robust earnings quality. Higher OCF than Net Income suggests good liquidity and efficient operational management, adding a point in the Piotroski analysis.

Liquidity of Synopsys (SNPS)

Leverage is declining?

Assess the change in a company’s leverage over a period. Leverage can impact the financial stability and risk profile of a company.

Synopsys (SNPS) observed an increase in leverage from 0.0583 in 2022 to 0.0639 in 2023. This trend is not favorable because higher leverage implies higher financial risk and reliance on debt financing. Despite the overall low leverage compared to notable past peaks, an upward trend requires cautious evaluation.

Current Ratio is growing?

The current ratio is a liquidity ratio that measures a company's ability to pay short-term obligations with its current assets.

Comparing the current ratio of Synopsys Inc. (SNPS), it increased from 1.0858 in 2022 to 1.1491 in 2023. This is indicative of improved liquidity, which suggests that Synopsys is better positioned to cover its short-term liabilities compared to the previous year. As a result, this criterion is met, and the score should be 1. Additionally, over the past 20 years, the company's current ratio has fluctuated but remained below the industry median, which was 1.5348 in 2023. Thus, while an increase year-over-year is positive, Synopsys could still aim to enhance its liquidity further to match or exceed the industry benchmark.

Number of shares not diluted?

Changes in outstanding shares can indicate whether a company is buying back shares or issuing new ones.

In 2023, Synopsys reported 152,146,000 shares outstanding, compared to 153,002,000 in 2022. This represents a decrease in outstanding shares. Therefore, 1 point is added for this criterion. This trend is favorable as it shows the company is executing share buybacks, which generally indicates strong financial health and management's confidence in the company's future. Over the last two decades, a fluctuating yet relatively stable trend is evident, with a peak in shares at 159,991,000 in 2004 and a low of 144,728,000 in 2006. This decline in 2023 aligns well with the company's long-term efforts to manage its share count.

Operating of Synopsys (SNPS)

Cross Margin is growing?

This criterion checks if there has been an improvement in the company's Gross Margin from the previous year. It helps assess whether the company is becoming more efficient in generating profit from its sales.

The Gross Margin for Synopsys (SNPS) increased slightly from 0.7907 in 2022 to 0.7908 in 2023. While this is a minor improvement, it does indicate progress. Over the last 20 years, Synopsys' Gross Margin has generally been strong compared to the industry median, which was 0.715 in 2023. Hence, this trend is good and 1 point is added for this criterion.

Asset Turnover Ratio is growing?

Asset Turnover represents a measure of a firm's efficiency in using its assets to generate sales.

Based on the given data, the Asset Turnover for Synopsys (SNPS) increased from 0.5593 in 2022 to 0.5916 in 2023. This indicates an improvement in efficiency, meaning the company is generating more sales per dollar of assets. This is a positive trend, especially considering that this rise comes in the context of a growing Asset Turnover over the past two decades. Setting 1 point for this criterion.