Last update on 2024-06-07

Trane Technologies (TT) - Piotroski F-Score Analysis for Year 2023 (Final Score: 9/9)

Piotroski F-Score Analysis for Trane Technologies (TT) in 2023. Full score 9/9 indicating strong profitability, liquidity, and operational efficiency.

Short Analysis - Piotroski Score: 9

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

The Piotroski F-Score for Trane Technologies (TT) is 9, which is the highest possible score. This score combines several criteria around profitability, liquidity, and operating efficiency. Key highlights include positive net income ($2,023,900,000), consistently positive cash flow from operations, and improved Return on Assets. The company's operating cash flow exceeds its net income, showcasing strong operational management. Despite a slight increase in debt-to-equity, leverage is on a general downward trend. The Current Ratio saw a minor improvement from 1.1218 in 2022 to 1.1349 in 2023, but remains below the industry median. The number of outstanding shares has decreased, indicating share buybacks and value return to shareholders. Furthermore, Gross Margin and Asset Turnover Ratio both improved, suggesting enhanced efficiency and profitability.

Insights for Value Investors Seeking Stable Income

Trane Technologies (TT) has achieved a perfect Piotroski F-Score of 9. This indicates a strong financial position, with excellent profitability and efficient operational management. The company generates significant cash flows and continues to reduce dilution through share buybacks. Although the Current Ratio is slightly below the industry median, the overall trends in financial health are positive. Given these factors, Trane Technologies appears to be a robust investment opportunity worth considering for both growth and value investors.

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

Profitability of Trane Technologies (TT)

Company has a positive net income?

Net income is a core indicator of a company’s profitability, showing the actual profit after all expenses, including taxes and interest, have been deducted from revenue.

For the fiscal year 2023, Trane Technologies (TT) reported a net income of $2,023,900,000. This represents a positive net income, adding 1 point to the Piotroski score. Over the past two decades, the company has seen fluctuations in net income, notably a significant loss in 2008, but has exhibited a general upward trend in profitability. This positive trend in net income is indicative of strong financial health and efficient operational management, reinforcing investor confidence.

Company has a positive cash flow?

The criterion checks if the Cash Flow from Operations (CFO) is positive. A positive CFO is essential as it indicates that a company is generating sufficient cash to maintain and grow its operations without the need for external financing.

For 2023, the Cash Flow from Operations (CFO) for Trane Technologies (TT) is $2,389,600,000, which is indeed positive. Given this positive trend, we can add 1 point. Over the last 20 years, the CFO has generally shown a positive trend with only a few dips, thereby indicating strong operational health. This is a good sign for Trane Technologies, as it consistently generates enough cash to cover its capital expenditures, dividends, and potential debt repayments. This positive CFO underscores the firm's ability to fund its core operations and fuel growth sustainably.

Return on Assets (ROA) are growing?

Change in ROA means evaluating how effectively the company is utilizing its assets to generate earnings. A higher ROA indicates better management efficiency.

For the years 2022 and 2023, Trane Technologies (TT) saw an increase in its Return on Assets (ROA) from 0.0972 to 0.108. This increase points towards improved efficiency in asset utilization. Given the increase, we can attribute a score of 1 point according to the Piotroski criteria. An upward trend in ROA is generally a positive indicator, implying the company is getting more proficient at converting its investments into profits. This improvement, even marginal in percentage terms, contributes positively to the overall financial health and is considered good for the shareholders.

Operating Cashflow are higher than Netincome?

This criterion assesses whether a company can generate sufficient cash from its operations to sustain its net income, indicating cash flow quality and operational health. The ideal scenario is having the operating cash flow exceed net income.

In 2023, Trane Technologies reported an operating cash flow of $2,389,600,000 and a net income of $2,023,900,000. Since the operating cash flow is higher than the net income, it receives 1 point for this criterion. Reviewing historical data, the company had varied trends: from lower cash flows relative to net income in early years to consistent improvement, peaking massively in 2023. This upward trend in cash flow contrasts interestingly with net income, underscoring solid operational management. This ratio implies the company generates more cash than it reports in income, showcasing robustness and efficient cash utilization.

Liquidity of Trane Technologies (TT)

Leverage is declining?

Change in leverage assesses if a company is reducing its debt relative to its equity, which indicates improving financial health.

The leverage for Trane Technologies (TT) moved from 0.2095 in 2022 to 0.2051 in 2023. This indicates a decrease in leverage, despite the result statement indicating an increase. With this decrease, we would theoretically assign 1 point as per the Piotroski criteria. The decreasing trend in leverage from a peak of 0.2487 in 2021 suggests that Trane Technologies is managing its debts effectively over recent years.

Current Ratio is growing?

The criterion evaluates whether Trane Technologies’ Current Ratio has improved over the last year. An increasing Current Ratio indicates better short-term liquidity, which is essential for meeting financial obligations.

Trane Technologies' Current Ratio increased from 1.1218 in 2022 to 1.1349 in 2023. Although this increase is marginal, moving from 1.1218 to 1.1349 demonstrates a slight improvement in the company’s liquidity position. Historically, the company's Current Ratio has fluctuated, with a significant range from 0.9797 to 2.3799 over the past 20 years. However, it's notable that the industry median Current Ratio is generally higher. Trane Technologies' ratio has consistently been below the industry median, which suggests that the company may need to strengthen its short-term financial health. Overall, this year's positive change, albeit small, adds 1 point in the Piotroski Analyses.

Number of shares not diluted?

Changes in shares outstanding indicate whether a company has issued more stock or repurchased it. A decrease in shares often signals strong financial health and shareholder value return.

In 2022, Trane Technologies had 232,600,000 outstanding shares, which decreased to 228,600,000 in 2023. The reduction in outstanding shares suggests a positive trend, as the company appears to be implementing buybacks. Over the past 20 years, the trend of outstanding shares has generally been decreasing from a high of 344,652,406 in 2003 to 228,600,000 in 2023, highlighting the company's commitment to returning value to shareholders. Such a decrease is often viewed favorably as it indicates increased earnings per share and can boost share prices. Therefore, Trane Technologies earns 1 point for this criterion.

Operating of Trane Technologies (TT)

Cross Margin is growing?

This criterion measures the percentage of revenue that exceeds the cost of goods sold. A higher Gross Margin indicates improved efficiency and profitability.

The Gross Margin for Trane Technologies (TT) has increased from 0.3105 in 2022 to 0.3313 in 2023, adding 1 point in the Piotroski analysis. This is a positive trend as it indicates enhanced efficiency and profitability. Historically, TT's Gross Margin has steadily improved over the past two decades, with notable year-over-year progress from 0.2435 in 2003 to the current 0.3313 in 2023. However, it is worth noting that TT's Gross Margin in 2023 still lags the industry median of 0.3492. Nonetheless, the upward trajectory positions TT favorably within its sector.

Asset Turnover Ratio is growing?

Asset Turnover measures the efficiency with which a company uses its assets to generate sales. A higher ratio indicates better performance.

The Asset Turnover ratio for Trane Technologies has indeed increased from 0.885 in 2022 to 0.9435 in 2023, marking an upward trend. This improvement suggests that the company has become more efficient in utilizing its assets to generate revenue. Historically, the company's Asset Turnover has fluctuated, reaching its lowest point of 0.6445 in 2020 and its highest point of 0.9547 in 2006. The increase in the ratio by approximately 6.6% year-over-year adds a valuable point to its Piotroski analysis score, indicating a positive trend and better asset utilization, which enhances the investment attractiveness of Trane Technologies.