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Last update on 2024-06-05

3M (MMM) - Piotroski F-Score Analysis for Year 2023 (Final Score: 4/9)

Analyze 3M's financial performance using the Piotroski F-Score. Score: 4/9, reflecting challenges in profitability, liquidity, and efficiency for 2023.

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: 4

We're running 3M (MMM) 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?
0
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?
0

The Piotroski F-Score evaluates a company's financial position based on nine criteria in profitability, liquidity, and operating efficiency. A score closer to 9 indicates a stronger financial position. 3M (MMM) scored a 4 out of 9. Despite strong historical positive net income and cash flow from operations, 3M reported a significant net loss in 2023. While the company demonstrated solid operational cash flow and reduced leverage, concerns include a declining return on assets, a subindustry median current ratio, decreasing gross margin, and falling asset turnover. Additionally, share buybacks have reduced outstanding shares, benefiting shareholders.

Insights for Value Investors Seeking Stable Income

Given 3M's Piotroski F-Score of 4, the company exhibits both positive and concerning financial attributes. The steady operational cash flow and reduced debt are positives, but significant challenges like the substantial net loss, declining return on assets, and asset turnover are concerning. Investors should approach with caution and consider these mixed signals, possibly looking for clearer recovery signs or improvements in financial health before making a decision.

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

Profitability of 3M (MMM)

Company has a positive net income?

This criterion evaluates whether a company has positive net income for the current year, reflecting its profitability.

Historical Net Income of 3M (MMM)

For 2023, 3M reported a net income of -$6,995,000,000, which is decisively negative. This represents a significant departure from its historical performance, as displayed by a consistent positive net income over the previous 19 years. For instance, in 2021, the last reported positive figure was $5,921,000,000. The negative swing suggests severe challenges or possibly extraordinary charges affecting the bottom line. As a result, 3M scores 0 points for this criterion.

Company has a positive cash flow?

A company’s Cash Flow from Operations (CFO) measures the cash generated from its regular operating activities. Positive CFO indicates efficient operational performance, crucial for sustaining and expanding a business.

Historical Operating Cash Flow of 3M (MMM)

3M’s CFO for 2023 stands at $6.68 billion, indicating a positive trend worth 1 point. Over the past 20 years, 3M has demonstrated consistently strong operational cash flow, with few fluctuations. Analyzing the data, it’s evident that the company generated substantial cash flow annually, surpassing $5 billion a majority of the years, peaking at around $8.11 billion in 2020.

Return on Assets (ROA) are growing?

Change in Return on Assets (ROA) is a critical measure of management efficiency in using assets to generate earnings. An increasing ROA indicates better profitability.

Historical change in Return on Assets (ROA) of 3M (MMM)

In 2022, the ROA for 3M was 0.1235. However, in 2023, the ROA significantly declined to -0.1442. This move is concerning as it indicates a substantial drop in profitability and points towards inefficiency in asset utilization. Compared to the last 20 years of historical data and the industry median ROA, which consistently stayed positive and close to or above 23%, the 2023 result stands as an anomaly and signals inherent challenges. This would add 0 points under the Piotroski criteria.

Operating Cashflow are higher than Netincome?

This criterion assesses whether the company’s operating cash flow exceeds its net income, indicating cash earnings quality.

Historical accruals of 3M (MMM)

In 2023, 3M's operating cash flow was $6.68 billion, while the net income stood at a starkly negative $6.995 billion. Notably, the operating cash flow being higher than the net income suggests that the company is generating sufficient cash from its core business operations despite posting an accounting loss. This is a good indicator because it highlights the firm’s ability to generate real cash profits. Hence, this trend is viewed favorably within the context of cash earnings quality, allotting 1 point.

Liquidity of 3M (MMM)

Leverage is declining?

The Change in Leverage criterion evaluates if a company has decreased its reliance on debt financing over the past year. A reduction in leverage is considered more favorable.

Historical leverage of 3M (MMM)

Comparing the leverage of 0.3155 in 2022 to 0.2705 in 2023, it is evident that 3M's leverage has decreased. This trend is favorable as lower leverage generally indicates a stronger financial position with reduced risk associated with debt. Historically, 3M's leverage saw significant fluctuations, peaking at 0.3948 in 2020 and now reaching a low of 0.2705, reflecting improved financial discipline. Hence, according to this criterion, 3M earns 1 point.

Current Ratio is growing?

The current ratio is the ratio of a company's current assets to its current liabilities. This measure indicates the company's ability to pay short-term obligations.

Historical Current Ratio of 3M (MMM)

For 3M (MMM), the current ratio has decreased from 1.5424 in 2022 to 1.0707 in 2023. This suggests a reduction in liquidity as the ratio fell below the industry's median of 1.4575 for 2023. Although the declining trend does not warrant adding a point based on the Piotroski F-score, such a low current ratio could imply potential liquidity issues. Historically, 3M's current ratio has consistently stayed above the industry median except in recent years, indicating a deterioration in its short-term financial health. Thus, a score of 0 is justified, and this negative trend could be a concern for investors.

Number of shares not diluted?

The change in shares outstanding measures the number of shares a company has issued to investors. A decrease in shares outstanding often indicates share buybacks, which can be beneficial for shareholders.

Historical outstanding shares of 3M (MMM)

In 2023, 3M (MMM) recorded outstanding shares of 553,900,000, down from 566,000,000 in 2022. This marks a decrease in outstanding shares, earning the company 1 point under the Piotroski F-Score criteria. This contraction in the number of outstanding shares is generally viewed positively as it implies share buybacks, directly benefiting shareholders by increasing their ownership percentage. Over the past 20 years, 3M has decreased its shares outstanding steadily from a high of 795,300,000 in 2003, reiterating its long-term commitment to returning value to shareholders through buybacks.

Operating of 3M (MMM)

Cross Margin is growing?

Describe what the Change in Gross Margin means and why it is crucial for evaluating a company's performance. Highlight how it affects profitability and operational efficiency.

Historical gross margin of 3M (MMM)

In comparing the Gross Margin of 3M (MMM) from 2022 to 2023, we observe a slight decrease from 0.4381 to 0.4346. While this translates into a drop, it does not meet the Piotroski criterion for an increase, thus garnering 0 points. Historically, 3M had a higher Gross Margin over the last two decades, reaching its peak at 0.5024 in 2004, but it has been on a downtrend in recent years. Despite the decline, 3M consistently maintains a Gross Margin significantly above the industry median, which stands at 0.2782 in 2023 compared to 3M's 0.4346. The steady performance above the industry standard signifies robust operational efficiency, although the declining trend poses potential concerns for profitability.

Asset Turnover Ratio is growing?

Explain the criterion for 3M (MMM) and why it is important to consider

Historical asset turnover ratio of 3M (MMM)

Asset Turnover is a key financial metric that measures the efficiency of a company's use of its assets to generate sales revenue. In 2023, 3M (MMM) reported an asset turnover of 0.6736 compared to 0.732 in 2022, indicating a decrease. This decline signifies reduced efficiency in the utilization of assets to generate sales. Looking at historical data, 3M's asset turnover has seen a significant downward trend over the years. For instance, the ratio was over 1.1 in the early 2000s and has been consistently falling since 2005. A lower asset turnover could be a result of multiple factors, including lower sales or higher asset base not adequately contributing to revenue. Such a trend is generally worrisome from an operational efficiency perspective. Hence, for 2023, the criterion for asset turnover fails to score a point (0) as the ratio has decreased year-on-year.


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