AJG 267.62 (-1.05%)
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Last update on 2024-06-05

Arthur J. Gallagher (AJG) - Piotroski F-Score Analysis for Year 2023 (Final Score: 5/9)

Arthur J. Gallagher has a Piotroski F-Score of 5/9 in 2023, indicating mixed financial health. Explore profitability, liquidity, and efficiency insights.

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: 5

We're running Arthur J. Gallagher (AJG) against the Piotroski 9-criteria scoring system to assess profitability, liquidity, and operating efficiency:

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

Arthur J. Gallagher (AJG) has a Piotroski F-Score of 5, which indicates an average financial health. The company does well in generating positive net income and cash flow from operations, showing strong profitability. Additionally, it has a positive gross margin and decreasing leverage, signaling good financial management. However, there are areas of concern: the return on assets (ROA) has decreased, the current ratio shows below industry median liquidity, there is share dilution, and the asset turnover ratio has been declining. These mixed results suggest that while AJG has strong profitability, it also faces operational and financial efficiency challenges.

Insights for Value Investors Seeking Stable Income

Given Arthur J. Gallagher's (AJG) Piotroski F-Score of 5 and its mixed financial performance, the stock may be worth a look for investors seeking stable, profitable companies with good cash flow and leverage management. However, potential investors should also be cautious of the company's declining ROA, current ratio, and asset turnover ratio. Further detailed analysis and consideration of whether these risk factors align with your investment strategy and risk tolerance is recommended 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 Arthur J. Gallagher (AJG)

Company has a positive net income?

This criterion evaluates whether the company is generating profit, crucial for assessing its financial health and ability to reinvest and grow.

Historical Net Income of Arthur J. Gallagher (AJG)

For Arthur J. Gallagher (AJG), the net income for 2023 stands at $969.5 million, which is positive. Historically, AJG has consistently delivered positive net income over the past two decades, starting from $146.2 million in 2003 and peaking at $1.1142 billion in 2022. This trend underscores the company's robust earning capacity and sustainable profitability, despite a slight dip in the most recent year. Hence, one point is added under the Piotroski criteria for positive net income, reflecting good corporate health and stable financial performance.

Company has a positive cash flow?

CFO, or Cash Flow from Operations, indicates the amount of cash a company generates from its regular business operations. Positive CFO means the company is generating enough cash to sustain its operations, which is crucial for its financial health.

Historical Operating Cash Flow of Arthur J. Gallagher (AJG)

For the fiscal year 2023, Arthur J. Gallagher (AJG) recorded a Cash Flow from Operations (CFO) of $2,031,700,000, which is a positive figure. Given the Piotroski analysis criterion, this trend is considered favorable, earning the company 1 point. Moreover, by examining the last 20 years of CFO data for AJG, a strong upward trend is evident. From a CFO of $229 million in 2003 to over $2 billion in 2023, the company has continuously improved its operational cash generation. This upward trajectory is a testament to the company's robust business model and operational efficiency, thus reinforcing the positive score for this criterion.

Return on Assets (ROA) are growing?

Return on Assets (ROA) measures a company's profitability in relation to its total assets.

Historical change in Return on Assets (ROA) of Arthur J. Gallagher (AJG)

Arthur J. Gallagher's (AJG) ROA decreased from 0.0311 in 2022 to 0.0216 in 2023. This is a negative trend, as it indicates the company was less efficient in turning its assets into profits year over year. Additionally, when looking at the long-term data, AJG's ROA has been consistently below the industry median, which points toward potential areas of inefficiency or higher costs relative to peers. Over the last 20 years, the industry median ROA ranges from 0.2191 to 0.9657, significantly higher than AJG's 2023 ROA of 0.0216.

Operating Cashflow are higher than Netincome?

The criterion assesses whether the company's operating cash flow (OCF) is higher than its net income for the year. It is important as higher OCF relative to net income indicates good quality of earnings and strong cash generation capabilities.

Historical accruals of Arthur J. Gallagher (AJG)

For 2023, Arthur J. Gallagher (AJG) reported an operating cash flow (OCF) of $2,031,700,000, while its net income was $969,500,000. Because the OCF is significantly higher than the net income, AJG earns 1 point for this criterion. This trend is good as it indicates the company is generating more cash from its operations than its reported net profits, suggesting high-quality earnings and potential for sustaining operations and growth. Historically, AJG has shown strong and increasing OCF, particularly noticeable from 2015 onwards, indicating robust operational performance.

Liquidity of Arthur J. Gallagher (AJG)

Leverage is declining?

Change in leverage assesses the ratio of a company's debt to its equity. Decreasing leverage indicates less reliance on debt, a positive indicator for financial stability.

Historical leverage of Arthur J. Gallagher (AJG)

In 2022, Arthur J. Gallagher (AJG) reported a leverage ratio of 0.1529, while in 2023, this figure slightly decreased to 0.1426. This downward move in leverage is a positive sign, suggesting AJG is reducing its reliance on debt to finance its operations and is, therefore, improving its financial stability. Particularly in an uncertain economic landscape, reducing debt can shield the firm from liquidity risks and potential insolvency. Over the last 20 years, AJG's leverage has seen fluctuations, with the lowest at 0.0076 in 2006 and the highest at 0.2123 in 2014. The continued reduction in leverage since 2019 demonstrates the company's commitment to maintaining a balanced and cautious approach toward its capital structure.

Current Ratio is growing?

The Current Ratio measures a company's ability to pay its short-term obligations with its short-term assets. A higher ratio indicates greater short-term financial health.

Historical Current Ratio of Arthur J. Gallagher (AJG)

The Current Ratio for Arthur J. Gallagher (AJG) decreased slightly from 1.0444 in 2022 to 1.0338 in 2023. This is not a significant change, but it is a decrease nonetheless. Comparing this with the industry's median Current Ratio, which was 1.2568 in 2022 and 1.2341 in 2023, AJG's ratio remains below the industry median, which might be a point of concern. Therefore, for the Piotroski analysis, AJG receives 0 points for this criterion.

Number of shares not diluted?

Change in Shares Outstanding represents the fluctuations in the total number of a company's shares held by shareholders, and it reflects actions like share buybacks, stock splits, or new share issues. It is a key factor in evaluating management's decisions on equity structuring and capital allocation.

Historical outstanding shares of Arthur J. Gallagher (AJG)

The Outstanding Shares of Arthur J. Gallagher (AJG) were 210,300,000 in 2022 and increased to 214,900,000 in 2023, indicating an increase of 4,600,000 shares year over year. This uptick in outstanding shares suggests dilution, which may not be favorable for existing shareholders as it can result in reduced EPS and ownership percentage. Over the last 20 years, AJG's outstanding shares have generally followed an upward trend from 93,121,019 in 2003 to 214,900,000 in 2023, which further reflects a pattern of dilution. Consequently, for the Piotroski criterion concerning change in shares outstanding, we assign a 0 point due to the increase in 2023, negatively impacting shareholder value.

Operating of Arthur J. Gallagher (AJG)

Cross Margin is growing?

The criterion assesses whether a company has improved its profitability over the previous year by analyzing the change in gross margin. A higher gross margin signifies better cost management and higher profit retention from revenue.

Historical gross margin of Arthur J. Gallagher (AJG)

The Gross Margin for Arthur J. Gallagher in 2023 was 0.4215, compared to 0.4207 in 2022. This indicates an increase, resulting in a score of 1 for this criterion. This 0.19% increase indicates better cost management or improved pricing strategies. It's a positive signal, especially in an industry where the median Gross Margin for 2023 was at 0.4489, suggesting Arthur J. Gallagher's gross margin is slightly below industry average but showing improvement.

Asset Turnover Ratio is growing?

The change in asset turnover ratio measures the efficiency of a company's use of its assets in generating sales revenue. An increasing ratio is favorable.

Historical asset turnover ratio of Arthur J. Gallagher (AJG)

The asset turnover for Arthur J. Gallagher (AJG) decreased from 0.2385 in 2022 to 0.2239 in 2023. This indicates a downward trend, meaning AJG was less efficient in utilizing its assets to generate revenue in 2023 compared to 2022. Thus, for the Piotroski analysis, 0 points are awarded for this criterion. The 20-year data shows a consistent decline in asset turnover from 0.4711 in 2003, suggesting ongoing inefficiency in asset utilization.


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