Last update on 2024-06-07

Taro Pharmaceutical Industries (TARO) - Piotroski F-Score Analysis for Year 2023 (Final Score: 7/9)

Analyze Taro Pharmaceutical Industries (TARO) using the Piotroski F-Score. Discover TARO's financial health with a score of 7/9 for 2023.

Short Analysis - Piotroski Score: 7

We're running Taro Pharmaceutical Industries (TARO) against the Piotroski 9-criteria scoring system to assess profitability, liquidity, and operating efficiency:

The Piotroski F-Score assesses a company's financial strength based on 9 criteria. Taro Pharmaceutical Industries (TARO) scored 7 out of 9. This analysis looks at profitability, liquidity, and operating efficiency. 1. Profitability: Taro has a positive net income of $25 million in 2023 and positive CFO of $31.75 million. However, its ROA has decreased. 2. Operating Efficiency: Taro's operating cash flow exceeds its net income, and the asset turnover ratio improved. 3. Liquidity: The current ratio increased, indicating better short-term financial health. Leverage has remained constant, which is stable but neutral. 4. Other factors: The gross margin decreased, and the number of outstanding shares slightly decreased, reducing dilution. Overall, Taro displays strong profitability and liquidity but faces challenges in efficiency with ROA and gross margin declining.

Insights for Value Investors Seeking Stable Income

With a Piotroski F-Score of 7, Taro Pharmaceutical Industries demonstrates good financial health, particularly with strong liquidity and positive income and operating cash flow. However, the decline in ROA and gross margin indicates some operational challenges. For investors, it could be worth looking into Taro Pharmaceutical if these operational issues are addressed, as the company shows solid fundamentals overall.

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

Profitability of Taro Pharmaceutical Industries (TARO)

Company has a positive net income?

The criterion analyzes if the net income is positive, contributing to the company's profitability assessment.

The net income for Taro Pharmaceutical Industries in 2023 is $25,445,000, which is indeed positive. Reviewing the data over the past 20 years, the net income has shown considerable fluctuations but has remained positive more often than not, save for a few negative years (notably in 2006, 2010, and 2021). The positive net income in 2023 scores 1 point in the Piotroski analysis, indicating a positive sign of profitability. This trend is good within this context as positive profitability tends to attract investors and boosts confidence in the company’s financial health.

Company has a positive cash flow?

Cash Flow from Operations (CFO) indicates the amount of cash a company generates from its regular business operations. It's crucial as it shows the company’s ability to generate sufficient positive cash flow to maintain and grow its operations.

In 2023, Taro Pharmaceutical Industries (TARO) reported a positive CFO of $31.75 million. This is a favorable trend for the company, especially considering its substantial cash flows in previous years. The overall resilience of operating cash flows over the past two decades, despite a few negative years (e.g., 2009, 2011, and 2022), highlights the company’s operational stability and efficiency. Given that the CFO remains positive, this criterion warrants a score of 1 point.

Return on Assets (ROA) are growing?

Change in ROA (Return on Assets) measures the effectiveness of a company's management in generating earnings using its assets, crucial for assessing operational efficiency.

The Return on Assets (ROA) for Taro Pharmaceutical Industries in 2023 is 0.0118, a decrease from 0.0254 in 2022. This decline indicates a reduction in the company's efficiency in generating profits from its assets. Given the Piotroski F-Score methodology, this decline results in a score of 0 for this criterion. Taro has consistently underperformed when compared to the industry median ROA, which has fluctuated but remained significantly higher in the past 20 years. The industry's median ROA in 2023 is approximately 0.5013, starkly higher than Taro's. This trend suggests systemic inefficiencies or challenges within Taro's operational management, thus underpinning the need for strategic reviews or adjustments.

Operating Cashflow are higher than Netincome?

This criterion evaluates whether the operating cash flow is higher than net income. It's important because operating cash flow is a better indicator of a company's financial health and ability to generate sufficient cash to maintain or grow operations, as it is less affected by accounting adjustments.

For Taro Pharmaceutical Industries (TARO) in 2023, the operating cash flow is $31,750,000, which is higher than the net income of $25,445,000. Therefore, this criterion adds 1 point. Historically, Taro's operating cash flow and net income have shown significant fluctuations. For example, in 2022, the operating cash flow was -$158,698,000 while net income was $58,266,000. The current year's alignment of positive operating cash flow exceeding net income is a favorable trend.

Liquidity of Taro Pharmaceutical Industries (TARO)

Leverage is declining?

Change in leverage metrics assesses the company’s capital structure adjustment and how it manages debt levels. Lower leverage often indicates greater financial stability.

Despite a leverage of 0 in 2022, Taro Pharmaceutical Industries saw an increase in leverage to 0 in 2023. Hence, there is no effective change in debt levels over these years. A closer look at the company’s historic leverage reveals a consistent decrease from 12.41% in 2003 to 0% post-2016, indicating a long-term trend toward reducing financial risk. The constant leverage in 2023 suggests stability but adds no points to the Piotroski score since there’s no decrease observed in the recent comparative period. Judging by Piotroski's criterion, this is a neutral indicator for the company’s current financial health, underlining steady debt management.

Current Ratio is growing?

The Current Ratio measures a company's ability to pay off its short-term liabilities with its short-term assets.

The Current Ratio for Taro Pharmaceutical Industries (TARO) increased from 3.0961 in 2022 to 3.4663 in 2023, earning a score of 1 in this criterion. This upward trend is a positive indicator, as it reflects an improved ability to cover short-term obligations. Notably, TARO's 2023 Current Ratio of 3.4663 outperforms the industry median of 2.1191, suggesting stronger short-term financial health in relative terms. Historically, TARO has experienced significant fluctuations in its Current Ratio, ranging from a low of 0.5061 in 2010 to a high of 9.5266 in 2017. Despite this volatility, its ratio has consistently placed above the industry median, signalling robust liquidity management over the years.

Number of shares not diluted?

Shares outstanding refer to a company's stock currently held by all its shareholders and can give key insights into ownership dilution.

With a minor reduction from 37,641,000 shares in 2022 to 37,585,000 shares in 2023, Taro Pharmaceutical Industries saw a decrease in outstanding shares. Historically, shares outstanding have fluctuated, having increased as high as over 40 million in the 2010s but showing a reduction trend in recent years, with notable decreases since 2017. This decline in outstanding shares in 2023, however nominal, suggests reduced dilution and potentially benefits shareholders by increasing their ownership percentage. Thus, this improvement earns 1 point in the Piotroski analysis for Taro Pharmaceutical Industries.

Operating of Taro Pharmaceutical Industries (TARO)

Cross Margin is growing?

Change in Gross Margin for Taro Pharmaceutical Industries (TARO) is a critical measure of the company's pricing strategy, cost control, and operational efficiency. A consistently high and increasing gross margin implies effective management and a strong competitive position in the market. It reflects the firm's ability to convert sales into actual profits while minimizing production costs.

In 2023, Taro Pharmaceutical Industries (TARO) experienced a gross margin of 0.4683, down from 0.5222 in 2022. This change represents a decline of approximately 10.3%. Over the past 20 years, Taro's gross margin has seen significant fluctuations, reaching as high as 0.8193 in 2016 and as low as 0.4079 in 2010. Comparatively, the industry median gross margin for 2023 stands at 0.5013, meaning Taro's current gross margin falls below the industry median. This declining trend is concerning and does not garner a point in the Piotroski analysis.

Asset Turnover Ratio is growing?

The asset turnover ratio measures the efficiency of a company's use of its assets to generate sales revenue.

The asset turnover ratio for Taro Pharmaceutical Industries has increased from 0.245 in 2022 to 0.2658 in 2023. This improvement translates to an increase in efficiency with which the company utilizes its assets to generate revenue. Historically, Taro's asset turnover ratio has fluctuated, with peak performance observed between 2008 and 2012 when the ratio surpassed 0.6. The current upward trend from 0.2312 in 2021 to 0.2658 in 2023, albeit modest, marks a significant positive movement, which warrants a score of 1 point in the Piotroski analysis. This improvement indicates that the company is optimizing its operations and possibly positioning itself better in the market.