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Last update on 2024-06-06

Microchip Technology (MCHP) - Piotroski F-Score Analysis for Year 2023 (Final Score: 8/9)

Discover Microchip Technology's (MCHP) impressive Piotroski F-Score of 8/9 for the year 2023, indicating robust financial health and high investment potential.

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: 8

We're running Microchip Technology (MCHP) 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?
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?
1

Microchip Technology (MCHP) has been evaluated using the Piotroski F-Score system, aiming to measure the company's financial health and operational efficiency. The Piotroski F-Score rates companies on a scale from 0 to 9, ensuring comprehensive analysis based on nine criteria. In 2023, Microchip Technology achieved a Piotroski Score of 8, indicating a strong financial position. Key metrics include a positive net income of $2.2377 billion, a positive cash flow from operations at $3.62 billion, and a noteworthy increase in Return on Assets (ROA) from 0.0787 to 0.1374. The analysis highlights that the company's Operating Cashflow exceeds its Net Income, leverage has declined substantially, and there has been a reduction in outstanding shares. However, concerns are flagged around the Current Ratio, which fell below 1 to 0.9842, suggesting potential liquidity challenges. Gross margins and asset turnover ratios have shown improvement, further underscoring strong operational management.

Insights for Value Investors Seeking Stable Income

Given the high Piotroski Score of 8, Microchip Technology (MCHP) appears to be a strong candidate for investment. However, prospective investors should monitor the company's Current Ratio as it suggests possible liquidity challenges. Overall, the company's consistent profitability, positive cash flow, efficient asset utilization, and declining leverage indicate sound financial health and operational efficiency, making it a potentially valuable addition to an investment portfolio. Additional due diligence and monitoring of liquidity metrics would be prudent steps for an informed investment decision.

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

Profitability of Microchip Technology (MCHP)

Company has a positive net income?

Net income is a critical indicator of a company's profitability, showing whether the firm is able to generate more revenue than its expenses.

Historical Net Income of Microchip Technology (MCHP)

In 2023, Microchip Technology reported a net income of $2,237,700,000, which is a positive figure. This is a positive trend and contributes 1 point to its Piotroski score. Examining the last 20 years of net income, it is evident that the company has shown a steady increase in profitability, with significant growth in recent years, particularly from 2018 onwards. This trend underscores the company's ability to generate sustainable profits and enhance shareholder value. Hence, this trend is fundamentally positive.

Company has a positive cash flow?

Cash Flow from Operations (CFO) is the cash a company generates from its regular business operations. It indicates whether a company can sustain its operations and grow organically.

Historical Operating Cash Flow of Microchip Technology (MCHP)

Microchip Technology (MCHP) has reported a CFO of $3.62 billion in 2023, which is positive. Evaluating the past 20 years, MCHP has consistently maintained a positive CFO, marking a consistent upward trend from $260.1 million in 2003 to the recent $3.62 billion. This positive cash flow is a good sign for the company's financial health as it indicates strong operational efficiency and reliability in generating cash.

Return on Assets (ROA) are growing?

Change in ROA

Historical change in Return on Assets (ROA) of Microchip Technology (MCHP)

Microchip Technology (MCHP) has demonstrated an increase in its Return on Assets (ROA) from 0.0787 in 2022 to 0.1374 in 2023. This notable rise in ROA, approximately a 74.6% increase, signals the company's enhanced capability to convert its assets into net income, generating more profit per dollar of assets. Adding a point here aligns with the objective of Piotroski analysis, identifying firms that are improving operationally. While this is a good trend for Microchip Technology, it is prudent to note that the industry median ROA, averaging around 0.4428 over the years, remains significantly higher. Hence, there's still room for performance improvement.

Operating Cashflow are higher than Netincome?

One of the Piotroski Score criteria is whether the company’s operating cash flow is higher than its net income.

Historical accruals of Microchip Technology (MCHP)

In 2023, Microchip Technology's Operating Cash Flow stands at $3.621 billion while its Net Income is $2.2377 billion. Since the operating cash flow is higher than the net income, it satisfies this particular criterion, adding 1 point to its Piotroski Score. This result is beneficial as it indicates the company’s ability to generate sufficient cash flow to meet its obligations, entrenched within a longer history of cash flow trends. Over the past 20 years, the company has consistently exhibited positive operating cash flows, demonstrating overall financial stability and effective operational management. The historical upward trend in Operating Cash Flow is indicative of strong financial health.

Liquidity of Microchip Technology (MCHP)

Leverage is declining?

Change in leverage refers to the difference in the level of debt the company is using to finance its assets compared to equity. Lower leverage generally means less risk.

Historical leverage of Microchip Technology (MCHP)

The leverage for Microchip Technology (MCHP) has decreased from 0.4745 in 2022 to 0.308 in 2023. This reduction in leverage is a positive trend, indicating that the company has reduced its level of debt compared to equity, thus lowering its financial risk. Historically, Microchip Technology has shown varied levels of leverage, peaking at 0.5146 in 2020 and hitting a low of 0 in the early 2000s. Adding a point for this positive change aligns with the Piotroski Analysis criteria that favor prudent financial management.

Current Ratio is growing?

The Current Ratio is a measure of a company's ability to cover its short-term liabilities with its short-term assets. It is calculated as Current Assets divided by Current Liabilities. If the ratio is higher than 1, it indicates that the company has more assets than liabilities, making it easier to cover its short-term obligations.

Historical Current Ratio of Microchip Technology (MCHP)

The Current Ratio for Microchip Technology (MCHP) decreased from 1.7531 in 2022 to 0.9842 in 2023, which is below 1. This implies that MCHP might struggle to meet its short-term obligations. In comparison, the industry median ratio in 2023 is 3.4213, showcasing a much stronger liquidity position within the sector. This downward trend in the Current Ratio for MCHP is concerning. Therefore, we assign 0 points.

Number of shares not diluted?

This criterion examines whether a company has reduced the number of its outstanding shares year-over-year, indicating a buyback which often signals financial strength and shareholder value uplift.

Historical outstanding shares of Microchip Technology (MCHP)

For Microchip Technology (MCHP), the outstanding shares decreased from 552.3 million in 2022 to 550.4 million in 2023, thus earning a full point. This reduction suggests a stock buyback, hinting at the company's strong cash position or management's belief in the stock's undervaluation. Over the last 20 years, the company has maintained a somewhat fluctuating trend in its outstanding shares, peaking in 2022 before slightly pulling back in 2023. This buyback effort can be a positive signal to investors, indicating disciplined capital allocation and a commitment to enhancing shareholder value.

Operating of Microchip Technology (MCHP)

Cross Margin is growing?

Change in Gross Margin

Historical gross margin of Microchip Technology (MCHP)

The Gross Margin for Microchip Technology (MCHP) has shown an increase from 0.6523 in 2022 to 0.6752 in 2023. This 3.5% rise in Gross Margin is indicative of improved operational efficiency and cost management. Consistently better margins compared to the industry median, which stood at 0.4919 in 2023, reflect the company's competitive edge.

Asset Turnover Ratio is growing?

Asset Turnover is a financial ratio that measures the efficiency of a company's use of its assets to generate sales revenue.

Historical asset turnover ratio of Microchip Technology (MCHP)

The Asset Turnover for Microchip Technology (MCHP) has increased from 0.4175 in 2022 to 0.5182 in 2023. Considering this significant rise from one year to the next, we can attribute it a score of 1 point according to the Piotroski F-Score metric. Historically, analyzing the last 20 years, 2023's turnover ratio of 0.5182 demonstrates one of the higher efficiencies in the company's ability to generate sales. In contrast, during the 2008 financial crisis, the ratio had dropped to a low of 0.3662 in 2009. This upward trend reaffirms the company's improved operational effectiveness and asset utilization.


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