1COV.DE 55.44 (+0.8%)
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Last update on 2024-06-04

Covestro (1COV.DE) - Piotroski F-Score Analysis for Year 2023 (Final Score: 6/9)

Detailed Piotroski F-Score analysis of Covestro (1COV.DE) for 2023, scoring 6/9, covering profitability, liquidity, and efficiency indicators.

Knowledge hint:
The Piotroski F-Score is a number between 0 to 9 which reflects the strength of a company's financial position. It is based on 9 criteria involving profitability, liquidity, and leverage. This model helps investors identify stocks that are strong, undervalued investments.
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Short Analysis - Piotroski Score: 6

We're running Covestro (1COV.DE) against the Piotroski 9-criteria scoring system to assess profitability, liquidity, and operating efficiency:

Criteria
Company has a positive net income?
0
Company has a positive cash flow?
1
Return on Assets (ROA) are growing?
1
Operating Cashflow are higher than Netincome?
1
Leverage is declining?
1
Current Ratio is growing?
0
Number of shares not diluted?
1
Cross Margin is growing?
1
Asset Turnover Ratio is growing?
0

The analysis covers the financial strength of Covestro (1COV.DE) using the Piotroski F-Score, which ranges from 0 to 9. Covestro has scored a 6, indicating a mixed financial health. Key points include last year's negative net income (-198 million), yet a positive cash flow from operations (€997 million). ROA showed slight improvement despite being negative. The company's leverage decreased over the year, indicating reduced financial risk. However, the current ratio (ability to cover short-term liabilities) declined, showing liquidity stress. The company has been repurchasing shares, signaling confidence. Gross Margin and Asset Turnover Ratio have shown unfavorable changes.

Insights for Value Investors Seeking Stable Income

Covestro scored a 6 out of 9 on the Piotroski F-Score scale, which suggests that the company has both strengths and weaknesses. Its positive cash flow and reduced leverage are good signs, but consistent negative net income and declining asset turnover ratio highlight potential concerns. While the company shows some resilience, particularly in its operating cash flows, the liquidity stress and recent losses are red flags. As an investor, you might want to keep an eye on this stock for potential recovery but approach with caution due to the current financial challenges and market conditions.

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

Profitability of Covestro (1COV.DE)

Company has a positive net income?

One of the fundamental indicators of a company's profitability and overall performance is its net income. The net income needs to be positive to demonstrate a net profit.

Historical Net Income of Covestro (1COV.DE)

For the year 2023, Covestro has reported a net income of -198,000,000. This is a negative value and thus indicates a net loss rather than a net profit. Consequently, no point can be awarded for this criterion as per Piotroski's analysis methodology. Evaluating the historical data over the last 20 years, we observe fluctuations in the net income. Key significant profits were noted in 2016 and 2017, where the net income peaked at 795,000,000 and 2,009,000,000, respectively. However, from 2019 onwards, a declining trend is visible, accentuated by negative values in the past two years (-272,000,000 in 2022 and -198,000,000 in 2023). This consistent deterioration in net income reflects poorly on the company's profit-generating capability and raises concerns about its financial health.

Company has a positive cash flow?

This measures whether the company generates sufficient cash from its core business operations. Positive CFO is generally a sign of a healthy business.

Historical Operating Cash Flow of Covestro (1COV.DE)

The Cash Flow from Operations (CFO) for Covestro in 2023 is €997 million, which is positive. Considering positive CFO is essential as it signifies that the company is able to generate adequate cash through its core business operations. In past years, while Covestro’s Operating Cash Flows have shown fluctuations—for example, it peaked at €2.37 billion in 2018 and dropped to €970 million in 2022—it has generally sustained a positive trend. This is indicative of operational robustness despite market volatilities. Hence, Covestro earns 1 point for having a positive CFO.

Return on Assets (ROA) are growing?

Change in Return on Assets (ROA) is a measure of how effectively a company is utilizing its assets to generate earnings. It's important since positive changes often signal improving efficiency or profitability.

Historical change in Return on Assets (ROA) of Covestro (1COV.DE)

Covestro's ROA improved from -0.018 in 2022 to -0.014 in 2023. While still negative, this indicates a relative improvement in asset utilization. In comparison, the industry's median ROA has been positive, highlighting Covestro's underperformance. However, the positive trend may signal potential recovery. Therefore, Covestro earns 1 point for the improvement in ROA in 2023.

Operating Cashflow are higher than Netincome?

The comparison between operating cash flow and net income is crucial because it evaluates the quality of earnings a company generates. A higher operating cash flow than net income indicates that a company’s earnings are backed by solid cash flows, which is a positive indicator of financial health.

Historical accruals of Covestro (1COV.DE)

In 2023, Covestro (1COV.DE) reported an operating cash flow of €997 million, while the net income was a negative €198 million. This results in the operating cash flow being significantly higher than the net income, giving a 1 point score in this criterion. This positive delta is noteworthy considering that, historically, Covestro generally maintained a robust cash flow, but faced net income volatility, especially with losses in 2022 and 2023. Despite the company's recent challenges, such as high raw material costs and economic downturns affecting profitability, the strong operating cash flow indicates resilience in cash-generating capability and provides a buffer to meet obligations and potentially recover from earnings downturns.

Liquidity of Covestro (1COV.DE)

Leverage is declining?

Change in leverage evaluates how the company's debt level has shifted relative to its equity. A decrease in leverage signifies reduced financial risk, while an increase suggests the opposite.

Historical leverage of Covestro (1COV.DE)

Based on the data, Covestro's leverage has decreased from 0.2309 in 2022 to 0.2009 in 2023. This decrease indicates lower financial risk and could be a sign of a healthier balance sheet. For the Piotroski analysis, this criterion will warrant adding 1 point. Historically, Covestro's leverage has shown fluctuations, with a record low of 0.0099 in 2015 and highs approaching the 2022 level.

Current Ratio is growing?

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

Historical Current Ratio of Covestro (1COV.DE)

For Covestro (1COV.DE), the Current Ratio decreased from 2.183 in 2022 to 1.7862 in 2023, setting the score to 0. This decline indicates a reduced ability to meet short-term obligations, dropping below the industry median of 1.9399 for 2023. Over the last decade, Covestro's ratio fluctuated, peaking at 2.6184 in 2020 but demonstrating less stability compared to industry medians. This deterioration from 2022 to 2023 suggests mounting liquidity pressures.

Number of shares not diluted?

This criterion evaluates whether the company has been repurchasing its own shares. A reduction in shares outstanding is typically seen as a positive signal because it indicates that the company believes its stock is undervalued and seeks to increase the value for existing shareholders.

Historical outstanding shares of Covestro (1COV.DE)

As observed, the total number of outstanding shares decreased from 190,933,438 in 2022 to 189,262,192 in 2023. This reduction means that Covestro repurchased some of its shares, which often reflects the company's confidence in its future performance and its aim to enhance shareholder value. Therefore, under the Piotroski criteria, Covestro scores 1 point for this parameter. Historically, the number of shares has decreased multiple times, such as from 234,339,622 in 2014 to 154,897,260 in 2015, and more recently from 193,165,396 in 2021 to 190,933,438 in 2022. This consistent trend confirms that the company has been proactive in managing its outstanding shares, further cementing the positive outlook provided by this criterion.

Operating of Covestro (1COV.DE)

Cross Margin is growing?

Explain the criterion for Covestro (1COV.DE) and why it is important to consider

Historical gross margin of Covestro (1COV.DE)

Analyzing the change in Gross Margin is essential for evaluating Covestro's operational efficiency. A consecutive improvement in Gross Margin indicates better control over costs relative to sales, leading to enhanced profitability. If the Gross Margin increased year-on-year, it garners a score of 1 on the Piotroski scale; if not, it remains at 0.

Asset Turnover Ratio is growing?

The Asset Turnover ratio measures the efficiency of a company's use of its assets in generating sales revenue. An increasing asset turnover ratio typically indicates better performance and more efficient use of assets, which is vital for profitability.

Historical asset turnover ratio of Covestro (1COV.DE)

In 2023, Covestro's Asset Turnover was 1.0189, down from 1.1917 in 2022. This decrease signifies a reduced efficiency in using assets to generate revenue. Historically, Covestro's Asset Turnover fluctuated, peaking at 1.3106 in 2017, while the lowest was 0.876 in 2020. The downward trend from 1.1917 to 1.0189 earns a score of 0 for this Piotroski criterion.


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