EMR 118.87 (+1.62%)
US2910111044Industrial ProductsSpecialty Industrial Machinery

Last update on 2024-06-06

Emerson Electric (EMR) - Piotroski F-Score Analysis for Year 2023 (Final Score: 7/9)

Comprehensive Piotroski F-Score Analysis of Emerson Electric (EMR) for 2023. Final Score: 7/9, reflecting financial health, profitability, and efficiency.

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: 7

We're running Emerson Electric (EMR) 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?
1
Operating Cashflow are higher than Netincome?
0
Leverage is declining?
1
Current Ratio is growing?
1
Number of shares not diluted?
1
Cross Margin is growing?
1
Asset Turnover Ratio is growing?
0

Emerson Electric has a positive net income of $13.219 billion in 2023 and a positive cash flow from operations of $637 million. The company's Return on Assets increased from 0.107 in 2022 to 0.3371 in 2023, and it reduced its leverage from 0.2403 to 0.1875, showing improved financial stability. Its Current Ratio, indicating liquidity, grew from 1.0937 in 2022 to 2.7462 in 2023, and the number of outstanding shares decreased from 592.9 million in 2022 to 574.2 million in 2023. However, the operating cash flow was lower than net income, and the asset turnover ratio decreased, indicating reduced operational efficiency.

Insights for Value Investors Seeking Stable Income

Overall, Emerson Electric scores a 7 out of 9 on the Piotroski F-Score, indicating strong financial health and potential for stability. The high net income, improved ROA, reduced leverage, and better liquidity suggest Emerson Electric is a solid investment. However, potential investors should consider the lower operating cash flow compared to net income and the declining asset turnover ratio as areas that might need closer scrutiny. It's worth looking into this stock as a stable investment with a note of caution regarding operational efficiency.

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

Profitability of Emerson Electric (EMR)

Company has a positive net income?

Net income is a vital measure of a company's profitability, showing the earnings remaining after all expenses and taxes have been deducted. It is essential to gauge the financial health and operational success.

Historical Net Income of Emerson Electric (EMR)

For Emerson Electric (EMR), having a positive net income of $13,219,000,000 in 2023 is a notably strong indicator of financial health. This not only secures 1 point per the Piotroski criteria but also reflects the company's capacity to generate substantial profit. By examining the historical data, it’s clear that EMR has maintained consistent profitability, with a significant jump in 2023 from $3,231,000,000 in 2022. This leap showcases invigorated operational success and potentially improved market conditions or strategic decisions. Such positive growth is definitely a favorable sign, affirming an improving and robust financial performance.

Company has a positive cash flow?

Cash Flow from Operations (CFO) scrutinizes the actual cash a company generates from its business operations, making it a crucial indicator of its financial health.

Historical Operating Cash Flow of Emerson Electric (EMR)

For Emerson Electric (EMR) in 2023, the Cash Flow from Operations (CFO) stands at $637,000,000, which is indeed positive. Therefore, under the Piotroski Analysis, this factor scores 1 point. Over the past 20 years, Emerson's annual CFO has typically been in the billions, peaking at $3.692 billion in 2014 and maintaining comparably high levels until recent declines. This trend may indicate external pressures or internal inefficiencies contributing to lower operational cash generation. Nonetheless, positive CFO, however reduced, underscores the company's ongoing ability to generate cash from core operations. Such a pattern, albeit concerning with such a dramatic drop, still retains positive implications compared to a negative CFO.

Return on Assets (ROA) are growing?

Return on Assets (ROA) measures how efficiently a company uses its assets to generate profits and is a crucial indicator of financial performance.

Historical change in Return on Assets (ROA) of Emerson Electric (EMR)

For Emerson Electric (EMR), the ROA increased significantly from 0.107 in 2022 to 0.3371 in 2023. This uptrend is highly favorable and indicates that EMR has become more efficient in utilizing its assets to generate earnings. Historically, the ROA over the past decades has shown fluctuations with values hovering around the industry median of approximately 0.32 to 0.35. This year's ROA improvement exceeds the industry median, setting a positive precedent. As a result, the criteria score is 1 point.

Operating Cashflow are higher than Netincome?

Evaluate if the operating cash flow is higher than net income and allocate a score based on this criterion

Historical accruals of Emerson Electric (EMR)

In the fiscal year 2023, Emerson Electric (EMR) reported an operating cash flow (OCF) of $637 million, whereas its net income stood at $13.219 billion. According to the Piotroski F-Score, the firm fails to garner a point for this parameter since the OCF is significantly lower than net income. Generally, this criterion is critical as a higher OCF than net income signals strong earnings quality and indicates that the company is generating sufficient cash relative to its reported profits. This trend for EMR is adverse not only because it fails to secure a point but also because such a discrepancy might suggest potential issues in earnings quality or financial reporting inconsistencies. It could also reflect temporary operational challenges impacting cash flow. Reviewing a 20-year dataset of EMR’s OCF and net income shows normally recurring robust figures for OCF until 2022, marking 2023 as an anomaly.**Financial experts often pay close attention to this sign, as continuing divergence might warrant further scrutiny.**

Liquidity of Emerson Electric (EMR)

Leverage is declining?

Change in leverage considers the year-over-year difference in a company's financial leverage to understand potential risk and capital structure changes.

Historical leverage of Emerson Electric (EMR)

From 2022 to 2023, Emerson Electric's leverage has decreased from 0.2403 to 0.1875. This drop indicates that the company has reduced its financial leverage, meaning it has less debt relative to its equity. A lower leverage ratio generally signifies reduced financial risk, making this a positive trend. Historically, Emerson Electric's leverage has fluctuated, but the current trend of decreasing leverage, especially from a high of 0.2928 in 2020 to 0.1875 in 2023, is a clear positive sign of financial stability. This decrease in leverage adds 1 point in the Piotroski analysis for 2023.

Current Ratio is growing?

The Current Ratio assesses a company's ability to meet short-term obligations with short-term assets.

Historical Current Ratio of Emerson Electric (EMR)

For 2023, Emerson Electric's Current Ratio stands at 2.7462, compared to 1.0937 in 2022. This marks a significant increase and thus warrants an additional point. An increasing Current Ratio signifies improved liquidity, indicative of the company's enhanced capability to cover imminent liabilities with liquid assets. However, when contextualized against the industry median, which slightly decreased to 1.7757, Emerson Electric not only shows stronger internal financial stability but also outperforms the industry trend. This bodes well for stakeholder confidence and short-term financial flexibility.

Number of shares not diluted?

Outstanding shares assess whether a company has diluted its stock. Lower shares suggest less dilution.

Historical outstanding shares of Emerson Electric (EMR)

In 2022, Emerson Electric had 592,900,000 outstanding shares, while in 2023, the number decreased to 574,200,000. This reduction of 18,700,000 shares indicates a more stringent management of stock dilution, which is particularly favorable for existing shareholders, as it means their stakes have become relatively more valuable. Historically, the trend over the past decades shows a consistent reduction in outstanding shares, e.g., from 840,926,641 in 2003 to the current 574,200,000 in 2023. This illustrates a robust strategy aiming at enhancing shareholder value. Overall, this earns a score of 1 point as per the Piotroski criteria.

Operating of Emerson Electric (EMR)

Cross Margin is growing?

Change in Gross Margin is vital as it reflects the company's ability to control production costs and manage pricing. Gross Margin indicates the percentage of revenue that exceeds the cost of goods sold (COGS), a key profitability metric.

Historical gross margin of Emerson Electric (EMR)

Emerson Electric's (EMR) Gross Margin increased from 0.4568 in 2022 to 0.4897 in 2023, showing an improvement. This positive trend suggests better cost management and pricing strategies, earning EMR 1 point in this criterion. Examination over 20 years reveals a relatively consistent increase, positioning EMR's gross margin above the industry median consistently since 2010. In 2023, the industry median gross margin was 0.3492, significantly lower than EMR’s, highlighting EMR's superior margin management.

Asset Turnover Ratio is growing?

The Asset Turnover ratio evaluates a company's ability to use its assets to generate sales and hence is a measure of operational efficiency.

Historical asset turnover ratio of Emerson Electric (EMR)

Emerson Electric's (EMR) Asset Turnover has decreased from 0.4572 in 2022 to 0.3868 in 2023. This decline suggests that the company is generating lesser sales per dollar of assets than it did in the previous year, indicating a reduction in operational efficiency. Historically, the company's Asset Turnover ratio has significantly decreased from highs of around 1.2184 in 2008 to its current position, showing a long-term downward trend. Overall, the significant drop over the years down to 0.3868 is a concerning signal for the company's efficiency in utilizing its assets to generate revenue. Thus, for this criterion, Emerson Electric scores a 0 point.


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