Last update on 2024-06-06

Xylem (XYL) - Piotroski F-Score Analysis for Year 2023 (Final Score: 5/9)

Analyse the financial health of Xylem (XYL) using the Piotroski F-Score for 2023. Learn about profitability, liquidity, and efficiency.

Short Analysis - Piotroski Score: 5

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

The Piotroski F-Score assesses a company's financial health on nine criteria across profitability, liquidity, and efficiency. Xylem (XYL) has a Piotroski Score of 5 out of 9, suggesting a mixed financial position. For profitability, Xylem scored positively on its net income, cash flow, and return on assets (ROA). Liquidity-wise, Xylem shows good leverage reduction but lacks in the increasing current ratio. On operational efficiency, it falls short in gross margin and asset turnover. Additionally, dilution of shares was a negative factor.

Insights for Value Investors Seeking Stable Income

With a Piotroski Score of 5, Xylem (XYL) shows moderate financial health. While the company demonstrates strengths in profitability and cash flow, areas like efficiency and share dilution pose concerns. Investors may find Xylem a potentially promising, though cautious, investment. It might be worth further investigation, particularly focusing on improving efficiency and understanding the reasons behind share dilution before making any decisions.

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

Profitability of Xylem (XYL)

Company has a positive net income?

The criterion evaluates whether a company's net income is positive. A positive net income indicates profitability, which is crucial for assessing financial health.

For the fiscal year 2023, Xylem (XYL) has reported a net income of $609 million, marking a significant positive trend. Historically, the firm has demonstrated a consistent ability to generate positive net income with minor fluctuations. For instance, in 2017, the net income was $331 million, whereas in 2013, it decreased to $228 million, showing the variable yet steady performance. The net income for 2020 stood at $254 million, improving to $427 million in 2021, and although it slightly dropped to $355 million in 2022, the substantial increase to $609 million in 2023 reflects strong financial growth. Therefore, for this criterion, Xylem scores 1 point due to its positive net income in 2023.

Company has a positive cash flow?

The criterion assesses whether a company can generate positive cash flow from its core operations, indicative of robust operational efficiency.

For 2023, Xylem (XYL) reported a positive Cash Flow from Operations (CFO) of $837 million. Evaluating the historical data, except for 2008 where the information is missing, Xylem has consistently shown a positive trend in CFO. This trend demonstrates a strong operational foundation and resiliency across various economic conditions. In 2019, the CFO significantly increased to $839 million before dipping slightly in the following years and then resurging to $837 million in 2023. This steady positive cash flow is an extremely favorable indicator, thus, 1 point is awarded under the Piotroski's F-score for this criterion.

Return on Assets (ROA) are growing?

ROA, or Return on Assets, measures how effectively a company utilizes its assets to generate profit. It's a critical parameter for efficiency and profitability.

In 2023, Xylem (XYL) exhibited an ROA of 0.0506, compared to 0.0438 in 2022. This upward trend in ROA is a positive sign indicating improved efficiency in asset utilization. Thus, Xylem earns 1 point for this criterion. Comparing to the industry median ROA, which consistently hovered above 0.3 over the past two decades, Xylem's 2023 ROA still falls significantly short. However, its year-over-year improvement positions Xylem on a potentially promising trajectory toward better performance.

Operating Cashflow are higher than Netincome?

Operating Cash Flow higher than Net Income is a crucial indicator of a company's financial health.

For Xylem (XYL) in 2023, the Operating Cash Flow stands at $837 million whereas the Net Income is $609 million. The former exceeds the latter, which is a positive trend. Over the past 16 years, especially since 2010, Xylem's Operating Cash Flow has consistently outpaced its Net Income: for example, in 2019, Operating Cash Flow was $839 million against a Net Income of $401 million. This consistent trend signals strong operating efficiency and liquidity. Consequently, Xylem gains a point in this criterion.

Liquidity of Xylem (XYL)

Leverage is declining?

Change in leverage assesses whether a company has reduced or increased its financial risk. A decrease in leverage is seen as positive in Piotroski analysis.

For Xylem (XYL), the leverage has decreased from 0.2364 in 2022 to 0.1408 in 2023. A lower leverage ratio indicates the company has reduced its financial risk, making it better positioned to weather economic downturns or financial uncertainties. This trend is notably positive compared to historical leverage data over the last 20 years, which shows a peak of 0.3256 in 2016. Therefore, this criterion scores 1 point.

Current Ratio is growing?

Explain the criterion for Xylem (XYL) and why it is important to consider

The Current Ratio is a liquidity ratio that measures a company's ability to cover its short-term obligations with its short-term assets. It provides insight into the financial health and operational efficiency of a company. Ensuring a stable or improving Current Ratio can be vital for understanding how well the company can manage its liabilities without raising external capital or debt.

Number of shares not diluted?

Change in Shares Outstanding is reviewed to determine whether the company is issuing new shares to raise capital or repurchase to reduce shares.

In comparing the Outstanding Shares of 180,200,000 in 2022 to 217,000,000 in 2023, we observe an increase of 20.4%. This trend is negative according to the Piotroski analysis criterion, which prefers a decrease in outstanding shares as it generally indicates corporations buy back shares, reducing supply and potentially increasing share price. Over the last 20 years, the number of shares has usually varied within a narrow range, indicating that this sudden increase is atypical. An increase can dilute the value of existing shares and might suggest the company is issuing shares to raise capital possibly due to strategic needs or financial constraints. Thus, the score for this criterion is set to 0 points.

Operating of Xylem (XYL)

Cross Margin is growing?

Change in Gross Margin measures a company’s profitability by comparing gross margins over different periods. A rising trend indicates improved efficiency.

Xylem's (XYL) Gross Margin decreased from 0.3774 in 2022 to 0.369 in 2023, reflecting a downward trend rather than an increase. Therefore, we assign it 0 points. This decline suggests a slight reduction in operational efficiency. Historically, since 2008, Xylem's Gross Margins have been volatile but generally above the Industry Median, indicating a consistently high performance even with recent downturns.

Asset Turnover Ratio is growing?

Asset Turnover analysis for Xylem (XYL). This criterion measures how efficiently a company can use its assets to generate sales. It is calculated by dividing sales by total assets. A higher asset turnover ratio indicates that the company is using its assets more efficiently.

In 2023, Xylem’s Asset Turnover stood at 0.612, down from 0.6806 in 2022. The decrease in asset turnover is a negative sign, reflecting decreased efficiency in utilizing assets to generate sales. Over the last 20 years, Xylem's asset turnover has largely trended downward, peaking at 2.2477 in 2009. This trend suggests that Xylem has been facing increasing challenges in asset utilization. Given the drop from 2022 to 2023, we assign 0 points for the asset turnover criterion.