Last update on 2024-06-07

WestRock (WRK) - Piotroski F-Score Analysis for Year 2023 (Final Score: 3/9)

Explore WestRock (WRK) Piotroski F-Score Analysis for 2023. Get insights on profitability, liquidity, and leverages factors impacting its 3/9 score.

Short Analysis - Piotroski Score: 3

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

WestRock (WRK) was analyzed using the Piotroski F-Score model, which evaluates profitability, liquidity, and operating efficiency. The company scored 3 out of 9 points. Key highlights include negative net income, positive cash flow from operations, declining return on assets, and an increasing leverage ratio, indicating rising financial risk. The current ratio decreased, suggesting weaker liquidity. However, the number of shares outstanding decreased, indicating potential buybacks. Gross margin and asset turnover ratio also declined, suggesting lower operational efficiency.

Insights for Value Investors Seeking Stable Income

Given WestRock's current Piotroski F-Score of 3, it indicates that the company has several financial challenges, including a negative net income and increasing leverage. While positive cash flow and share buybacks are positive signs, the overall low score suggests caution. It might be better to investigate further or consider other investment options with stronger financial positions. Investors should seek companies with higher Piotroski scores for potentially better investment opportunities.

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

Profitability of WestRock (WRK)

Company has a positive net income?

Check if the company's net income for the given year is positive. If positive, add 1 point, otherwise set to 0.

The Net Income for WestRock in 2023 is -$1.649 billion, which is clearly negative. This results in 0 points for this criterion. The trend is concerning, especially when compared to the previous 20 years of data. WestRock has experienced several fluctuations, with significant losses recorded in 2016, 2020, and now 2023. The recent loss in 2023 is the highest in the past two decades. Such losses are critical for the financial health of a company and could raise questions about its profitability and operational efficiency.

Company has a positive cash flow?

Cash Flow from Operations (CFO) measures the cash inflows and outflows from a company's core operational activities. Positive CFO indicates a healthy business capable of generating sufficient cash from its core activities, which is crucial for meeting obligations and investing in growth without relying on external funding.

WestRock reported a positive Cash Flow from Operations (CFO) of $1,827,900,000 in 2023, which results in earning 1 point in this Piotroski F-Score criterion. Examining the historical data, WestRock’s CFO over the past 20 years shows a general upward trend, which is indicative of its robust operational performance. Especially notable is the consistent positive CFO since 2003, with highlights such as $1,032,500,000 in 2013, $1,903,000,000 in 2017, and peaking at $2,420,900,000 in 2018. Despite slight fluctuations, the strong operational cash flow signifies that WestRock has maintained a solid capability to generate cash internally, which is favourable for its financial health and sustainability. This positive trend even amid market variances underscores the company's effective cost management and operational efficiency. Such performance not only strengthens stakeholder confidence but also provides a cushion against potential economic downturns.

Return on Assets (ROA) are growing?

The change in Return on Assets (ROA) measures how well a company is managing its assets to generate earnings. An increasing ROA indicates improved efficiency.

In 2023, WestRock's ROA was -0.0591 compared to 0.0328 in 2022. This decline of approximately 17.19% indicates worse performance in asset utilization. Despite decreases in operating cash flow from 2022's $2,020,400,000 to 2023's $1,827,900,000, the asset utilization fell below industry medians, suggesting operational issues or investment inefficiencies. Hence, WestRock scores 0 points on this criterion.

Operating Cashflow are higher than Netincome?

Operating cash flow being higher than net income is essential as it indicates strong cash-generating ability.

For the fiscal year 2023, WestRock (WRK) exhibits an operating cash flow of $1,827.9 million compared to a net income of -$1,649.0 million. This notable disparity (+$3,476.9 million) signifies that the company generates sufficient cash from its core operations despite net losses, adding a positive point in the Piotroski Analysis. Over the past 20 years, WestRock's operating cash flow has generally been robust, peaking at $2,420.9 million in 2018. Conversely, net income has seen fluctuating values, with occasional significant losses, like in 2023 and 2020. A steady upward trend in operating cash flow is visible, affirming resilience and operational efficacy, even in challenging economic cycles.

Liquidity of WestRock (WRK)

Leverage is declining?

Change in Leverage is assessed to determine whether a company's financial risk is increasing or decreasing. Lower leverage indicates less risk and better financial health.

In 2022, WestRock had a leverage ratio of 0.2667, which increased to 0.2934 in 2023. This rise in leverage indicates that the company's financial risk has increased, signaling a move towards greater financial instability. Over the last 20 years, WestRock's leverage has fluctuated, with the ratio peaking in 2008 at 0.4825 and reaching its lowest in 2015 at 0.2192. Recently, though, the trend shows an upward movement from the 2022 leverage, adding to concerns about escalating debt and decreased financial sustainability. Therefore, this criterion scores 0 points as leverage has not decreased.

Current Ratio is growing?

The change in Current Ratio illustrates how well WestRock can cover its short-term liabilities with its short-term assets. An increasing Current Ratio suggests improving liquidity, which is vital for meeting immediate obligations.

As of 2023, WestRock's Current Ratio has decreased to 1.4215 from 1.5336 in 2022, marking a decline in its liquidity position. This trend appears unfavorable for the company's ability to cover short-term liabilities as efficiently as in the previous year. Notably, over the past 20 years, WestRock's current ratio has shown substantial variability but has generally remained above the industry median, except for 2023 when the company's current ratio of 1.4215 fell short of the industry median of 1.5762. This warrants closer scrutiny of WestRock's operational and financial strategies to address the declining trend.

Number of shares not diluted?

Shares Outstanding criterion checks if the number of shares has decreased from the previous year, indicating a buyback which is usually a positive indicator.

WestRock's outstanding shares have decreased from 259.5 million shares in 2022 to 255.9 million shares in 2023, a reduction of approximately 3.6 million shares. Generally, a decrease in outstanding shares is seen as a positive trend as it means the company is possibly engaging in share buybacks, which tend to increase the value of the remaining shares. In this case, adding 1 point would be appropriate. Analyzing historical data shows fluctuations in the number of shares, with significant increases in years like 2012 and 2015 likely indicating major share issues or acquisitions. The recent decrease continues the fluctuating trend but indicates a positive shift in 2023 as compared to the previous two decades.

Operating of WestRock (WRK)

Cross Margin is growing?

Gross Margin measures what portion of a company's revenue exceeds its cost of goods sold. It's significant: A higher Gross Margin means a company retains more capital per dollar of revenue, which is crucial for covering other costs.

In 2023, WestRock's Gross Margin decreased to 0.1765 from 0.1891 in 2022, marking a downturn. Over the last 20 years, 2023's Gross Margin is among the lower figures, barely surpassing the low recorded in 2005 (0.1582). Comparatively, the industry median for Gross Margins in 2023 is 0.222, which suggests WestRock is underperforming relative to peers. The 2023 value provides a 7.6% decrement from the previous year and reflects subpar operational efficiency. Given these observations, WestRock scores 0 points in this Gross Margin criterion for 2023.

Asset Turnover Ratio is growing?

Asset Turnover measures the efficiency of a company’s use of its assets in generating sales revenue. It is calculated by dividing net sales by average total assets. A higher ratio indicates increased efficiency.

The Asset Turnover for WestRock (WRK) decreased slightly from 0.7373 in 2022 to 0.7273 in 2023. Consequently, this criterion gets 0 points. Over the last 20 years, the ratio has been on a general declining trend from a high of 1.292 in 2007 to the latest value of 0.7273 in 2023. This decline hints at reduced efficiency in asset utilization. The decrease from 2022 to 2023 further underscores this unfavorable trend, suggesting that the company should strive to optimize its asset utilization efforts.