MCK 576.66 (+0.25%)
US58155Q1031Medical DistributionMedical Distribution

Last update on 2024-06-06

McKesson (MCK) - Piotroski F-Score Analysis for Year 2023 (Final Score: 7/9)

Comprehensive Piotroski F-Score analysis of McKesson (MCK) for 2023, detailing profitability, liquidity, and operational efficiency. Final score: 7/9.

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 McKesson (MCK) 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?
0
Asset Turnover Ratio is growing?
1

The Piotroski F-Score is a system to assess the financial strength of a company, based on 9 criteria related to profitability, liquidity, and leverage. A score of 7 out of 9 indicates a strong and solid company. Using this scoring system, McKesson (MCK) received a score of 7. Key highlights include: positive net income and cash flow from operations, improving return on assets, favorable leverage and share dilution trends, and increasing asset turnover. However, it faced challenges with declining gross margin and current ratio, which reflect some difficulties in operational efficiency and short-term financial health.

Insights for Value Investors Seeking Stable Income

Although McKesson showed strength in several areas such as net income, cash flow, asset efficiency, reduced leverage, and share buybacks, it also faces challenges like declining gross margins and current ratio. Given its overall strong Piotroski score of 7, it appears to be a fundamentally solid stock worth considering for investment, particularly for those willing to take a deeper look into the specific operational challenges that may affect long-term growth.

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

Profitability of McKesson (MCK)

Company has a positive net income?

Consider the net income criterion. This examines whether the net income for the specified year is positive or negative, serving as an indicator of profitability and financial health.

Historical Net Income of McKesson (MCK)

In 2023, McKesson (MCK) reported a net income of $3.56 billion. This is a positive figure, which means the company has been profitable for that year, adding 1 point to the Piotroski score. Over the last 20 years, McKesson's net income has shown variability, with some years marked by strong profitability and others by significant losses, like in 2019 when the company posted a loss of $4.54 billion. This positive net income in 2023 represents a favorable trend and indicates effective financial management and operational efficiency.

Company has a positive cash flow?

Cash Flow from Operations (CFO) measures the amount of cash generated by a company's regular operating activities within a specific period. It reflects the company's ability to generate sufficient cash flow to maintain or expand operations, which is vital for long-term sustainability.

Historical Operating Cash Flow of McKesson (MCK)

McKesson's CFO for the year 2023 stands at $5,159,000,000, which is significantly positive. This marks another year of strong cash flow generation, continuing an overall upward trend seen over the past 20 years. For instance, in 2013, McKesson reported a CFO of $2,483,000,000, which has steadily increased to $5,159,000,000 in 2023. This positive CFO is crucial as it demonstrates McKesson’s ability to cover its operational costs and fund necessary capital expenditures—all of which showcases robust financial health. Hence, it deserves 1 point in the Piotroski score.

Return on Assets (ROA) are growing?

Change in ROA measures a company's ability to convert assets into profits over time. It is important because it indicates the efficiency and profitability of a company.

Historical change in Return on Assets (ROA) of McKesson (MCK)

The Return on Assets (ROA) for McKesson (MCK) has shown an improvement from 0.0174 in 2022 to 0.0567 in 2023, resulting in a 1 point addition according to the Piotroski Analysis. This increase in ROA is indicative of improved efficiency in profit generation from assets. Interestingly, while this represents substantial progress for McKesson, its ROA remains below the industry median, which has been fluctuating and was 0.2089 in 2023. This suggests that while McKesson is on the right trajectory, there is still significant room for it to catch up to its peers in terms of asset efficiency.

Operating Cashflow are higher than Netincome?

One of the criteria in Piotroski analysis is ensuring that Operating Cash Flow exceeds Net Income.

Historical accruals of McKesson (MCK)

For the fiscal year 2023, McKesson (MCK) has an Operating Cash Flow of $5.159 billion and a Net Income of $3.56 billion. Since the Operating Cash Flow surpasses the Net Income, McKesson scores 1 point for this criterion. This is positive indicator, reflecting good earnings quality and suggesting that the company’s profits are well backed by actual cash flows. Over the past 20 years, McKesson has consistently displayed robust Operating Cash Flow. Since 2003, Operating Cash Flow has gradually increased from $695.5 million to the current $5.159 billion. Contrastingly, Net Income has fluctuated and even experienced a sharp dip to a loss of $4.539 billion in 2021, only to recover to $3.56 billion in 2023. This consistency in Operating Cash Flow, despite the volatility in Net Income, underlines strong operational efficiency and cash-generating ability for McKesson.

Liquidity of McKesson (MCK)

Leverage is declining?

Leverage measures the ratio of a company's total debt to its total assets. It is crucial for assessing the risk associated with the company's financial structure.

Historical leverage of McKesson (MCK)

McKesson's leverage ratio decreased from 0.1018 in 2022 to 0.0967 in 2023, which indicates a reduction in financial risk. Over the last 20 years, McKesson's leverage has seen highs and lows, with a peak of 0.1729 in 2014. This downward trend in leverage is a positive signal, indicating healthier balance sheet management, thereby earning 1 point.

Current Ratio is growing?

The Current Ratio measures a company's ability to pay short-term obligations with its current assets.

Historical Current Ratio of McKesson (MCK)

Analyzing McKesson's (MCK) current ratios from the last years, there's a slight decrease from 0.9539 in 2022 to 0.9236 in 2023, thus indicating a worsened short-term liquidity position. With a decrease, this criterion scores 0 points. Furthermore, over the last 20 years, McKesson's ratios have been relatively close to each other, reflecting measured yet decreasing competency in handling current liabilities compared to industry medians which stay significantly higher. The industry median for 2023 is 1.3772, further emphasizing McKesson's below-average short-term financial strength.

Number of shares not diluted?

Evaluating the change in outstanding shares is crucial as it can reflect company actions such as buybacks or new issuance, impacting shareholder value.

Historical outstanding shares of McKesson (MCK)

Comparing the outstanding shares of 152.3 million in 2022 to 141.1 million in 2023 shows a decrease. This reduction signifies a strategic move by McKesson to buy back shares, potentially enhancing shareholder value. This decrease is considered positive in the Piotroski analysis, thus, it warrants an addition of 1 point. The historical data further projects a consistent pattern of share buybacks over the past 20 years, which underscores a long-term strategic approach to boosting per-share metrics and investor returns, as seen in the share count dropping from 298.8 million in 2003 to 141.1 million in 2023.

Operating of McKesson (MCK)

Cross Margin is growing?

Discuss the importance of gross margin in financial analysis overall, and specific to McKesson (MCK).

Historical gross margin of McKesson (MCK)

Gross margin is a critical profitability metric indicating how efficiently a company produces its goods. For McKesson (MCK), the Gross Margin decreased from 0.0497 in 2022 to 0.0447 in 2023, a negative trend suggesting heightened cost pressures or reduced pricing power. An analysis over the past 20 years shows that McKesson's gross margin has generally declined, diverging significantly from the industry median, which shows greater volatility. This divergence could signal company-specific operational challenges or strategic decisions impacting profitability. Given this decline in 2023, zero points are added to the Piotroski score. This trend raises concerns about McKesson’s ability to convert revenue into gross profit relative to its industry peers.

Asset Turnover Ratio is growing?

The criterion measures the change in the efficiency of a company's use of its assets to generate sales

Historical asset turnover ratio of McKesson (MCK)

McKesson's asset turnover ratio in 2023 was 4.4056, an increase from 4.1144 in 2022. This increase indicates an improvement in McKesson's efficiency in utilizing its assets to generate revenue. Historically, the company has had varying levels of asset turnover, peaking in 2005 at 4.5988 and hitting a low in 2014 at 3.1801. Therefore, the positive trend in 2023 adds 1 point to the Piotroski score as it shows a favorable improvement in operational performance.


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