Last update on 2024-06-05

Western Digital (WDC) - Piotroski F-Score Analysis for Year 2023 (Final Score: 2/9)

Get an in-depth Piotroski F-Score Analysis of Western Digital (WDC) for 2023 with final score 2/9. Understand the financial position based on 9 critical factors.

Short Analysis - Piotroski Score: 2

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

We assessed the financial health of Western Digital (WDC) using the Piotroski F-Score, which ranges from 0 to 9. A higher score indicates a stronger financial position. WDC scored 2 out of 9. Key points include: 1) Profitability: Negative net income and operating cash flow, downtrend in ROA, and decline in gross margin show poor profitability. 2) Liquidity: Leverage slightly decreased but current ratio declined, indicating reduced ability to cover short-term liabilities. 3) Operating efficiency: Asset turnover ratio dropped, and the number of shares increased, indicating potential dilution.

Insights for Value Investors Seeking Stable Income

Given the Piotroski F-Score of 2, WDC is currently not in a strong financial position. The company has negative profitability metrics and weakened liquidity and operational efficiency. It may not be the best choice for investors looking for a stable and strong investment. Further investigation and consideration of other financial metrics and market conditions are advised before investing in WDC.

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

Profitability of Western Digital (WDC)

Company has a positive net income?

Net income (NI) measures a company's profitability over a period. Positive net income suggests profitable operations, while negative indicates losses.

For Western Digital (WDC), the net income in 2023 stands at -$1,706,000,000, which is unfavorable and earns 0 points in Piotroski Analysis. The company's NI trend reflects significant fluctuations, with notable profitability in years like 2012 ($1.612 billion) contrasted by recent substantial losses, e.g., 2023 and 2019 (-$754 million). This troubling trend might spook potential investors examining financial health meticulously.

Company has a positive cash flow?

Operating Cash Flow (CFO) indicates the amount of cash generated from the core business operations. It's a key metric for evaluating a company's financial health.

For Western Digital, the Operating Cash Flow (CFO) in 2023 stands at -$408 million, which is significantly negative. Over the past 20 years, Western Digital has shown a mixed trend in its cash flow from operations. For instance, in 2012, they boasted $3.067 billion in CFO, while in 2022, they reported $1.88 billion. Such fluctuations indicate periods of robust financial health interspersed with downturns. A negative CFO in 2023 is a concerning sign, reflecting potential challenges in generating cash from core operational activities. Consequently, we assign a 0 for this criterion.

Return on Assets (ROA) are growing?

Change in ROA (Return on Assets) refers to the variation in performance over time in terms of asset-efficiency in generating earnings. It is a crucial criterion as a growing ROA indicates improving profitability and efficiency in asset utilization.

For Western Digital (WDC), the ROA in 2023 was -0.0673, down significantly from a ROA of 0.0573 in 2022. This stark decline results in setting this criterion to 0. Specifically, WDC's 2023 ROA indicates that the company is now generating negative returns on its assets, a clear reversal from the positive returns seen in the previous year. This trend is quite concerning, as it not only shows a deterioration in asset efficiency but contrasts starkly with the industry's performance, where the median industry ROA for 2023 was 0.3501. This gap highlights potential challenges WDC faces in managing and leveraging its assets compared to its peers. Therefore, the company scores 0 on this criterion, reflecting a worrisome decrease in profitability and operational efficiency.

Operating Cashflow are higher than Netincome?

Operating cash flow exceeding net income suggests a company's core business is solid and generating enough cash.

For Western Digital (WDC) in 2023, the operating cash flow is -$408 million, whereas the net income is -$1,706 million. This denotes that operating cash flow is higher than net income, an intriguing aspect especially considering Western Digital's financial trajectory. Historically, from 2003 to 2022, the company's operating cash flow has stayed positive, peaking at around $4,205 million in 2018. Comparatively, negative operting cash flow in 2023 marks a significant downward shift. Nonetheless, even in this substantial negative earnings year, operating cash flows being relatively lesser negative, signals fundamental business processes amid turbulence. Therefore, under Piotroski Analysis, WDC scores 1 point here.

Liquidity of Western Digital (WDC)

Leverage is declining?

Change in leverage examines whether a company is becoming less reliant on debt for its operations, indicating lower financial risk.

When comparing Western Digital's leverage of 0.2674 in 2022 with the leverage of 0.2398 in 2023, it is noted that the leverage has decreased. Specifically, leverage fell from 26.74% to 23.98%, indicating a reduction in the company's financial risk. Therefore, Western Digital earns 1 point for this criterion. Examining the long-term trend over the last 20 years, we see periods of higher leverage, notably in 2016 and 2017 with leverage ratios surpassing 0.40, before promising declines in recent years. This reduction in leverage is favorable, as it shows management’s effective handling of debt and transition towards a more conservative financial structure.

Current Ratio is growing?

Current Ratio: Compare the Current Ratio of 1.4512 in 2023 with the Current Ratio of 1.805 in 2022

Western Digital (WDC) has seen a decrease in its Current Ratio from 1.805 in 2022 to 1.4512 in 2023. This decline is indicative of a reduced capability to cover short-term liabilities with short-term assets. While the industry median Current Ratio for 2023 stands at 2.3065, WDC's figure of 1.4512 significantly lags behind, indicating potential liquidity concerns. Hence, no point is added for this criterion in the Piotroski analysis.

Number of shares not diluted?

Change in shares outstanding refers to the difference in the number of shares that have been issued and are currently held by shareholders compared to previous periods.

Western Digital (WDC) saw an increase in its outstanding shares from 312 million in 2022 to 318 million in 2023. This translates to a growth of approximately 1.92% in the number of shares. The trend shows an increased number of shares being issued in recent years. Historically, the number of shares outstanding has been on an upward trajectory since 2003, where it started at 205.5 million shares, indicating a general propensity for dilution over the long term. Given the criterion states that a decrease in outstanding shares would add one point, the increase in 2023 results in a score of 0 for this criterion. Increased shares can potentially dilute existing shareholders’ value but can also signify capital raising activities for growth and expansion.

Operating of Western Digital (WDC)

Cross Margin is growing?

Gross Margin is a company's net sales revenue minus its cost of goods sold, divided by net sales. It indicates the financial health of a company.

In the case of Western Digital (WDC), the Gross Margin has significantly decreased from 0.3126 in 2022 to 0.1532 in 2023. This represents a nearly 50% decline in Gross Margin, which is indicative of deteriorating financial health in terms of profitability. Over the last 20 years, the company's Gross Margin has fluctuated but maintained some level of stability. However, the current Gross Margin is substantially lower than the industry median of 0.3501. Therefore, WDC fails to score on this criterion, as a decreasing Gross Margin is not favorable. Thus, no points are awarded for this criterion.

Asset Turnover Ratio is growing?

Asset Turnover measures a company's efficiency in using its assets to generate sales and is calculated as Total Revenue divided by Average Total Assets.

In 2023, Western Digital's (WDC) Asset Turnover was 0.486, compared to 0.7174 in 2022. This represents a decline, indicating that the company's efficiency in using its assets to generate revenue has deteriorated. Over the last 20 years, WDC has seen significant fluctuations in its Asset Turnover, with the highest at 3.6176 in 2003. The trend over the long term demonstrates a clear downward trajectory, with particularly sharp declines from 2016 onwards. Therefore, we rate the Asset Turnover for 2023 as 0 points.