Last update on 2024-06-04

Merck (MRK.DE) - Piotroski F-Score Analysis for Year 2023 (Final Score: 5/9)

Merck (MRK.DE) Piotroski F-Score analysis for 2023: Final score is 5/9. Detailed evaluation of profitability, liquidity, and operational efficiency.

Short Analysis - Piotroski Score: 5

We're running Merck (MRK.DE) against the Piotroski 9-criteria scoring system to assess profitability, liquidity, and operating efficiency:

Merck (MRK.DE) has been evaluated using the Piotroski F-Score, which is a measure of a company's financial health based on 9 criteria related to profitability, liquidity, and operating efficiency. Merck scored 5 out of 9, indicating a moderately strong position. For profitability, Merck has a positive net income and cash flow but has a decreasing return on assets (ROA). They excel in liquidity with increased operating cash flow compared to net income and improved current ratio but have increased leverage. In operational efficiency, Merck has faced challenges with a declining gross margin and asset turnover ratio. Merck's number of outstanding shares has remained stable.

Insights for Value Investors Seeking Stable Income

Given the score of 5, Merck shows decent financial health and some positive aspects like sustained profitability and improved liquidity. However, it also has some concerns like the decreasing ROA, leverage increase, and declining operational efficiency. Investors looking for a balanced risk might consider Merck, but should be cautious of the mentioned weaknesses and monitor the company’s upcoming financial reports and industry position.

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

Profitability of Merck (MRK.DE)

Company has a positive net income?

Net income is the total profit of a company after all expenses and taxes have been deducted.

Merck's net income in 2023 is 2,824,000,000, which is positive. This adds 1 point according to the Piotroski Analyses criteria. Analyzing the additional data, Merck has maintained a positive net income for the last 20 years, though it fluctuates. The best performing years were 2007 and post-2014, indicating strong profitability trends over extended periods. The consistent positive trend is a good indicator of financial health.

Company has a positive cash flow?

Cash Flow from Operations (CFO) represents the amount of cash a company generates from its regular business operations. It is critical for gauging the company's liquidity and financial health.

For Merck (MRK.DE), the CFO in 2023 stands at €3,784,000,000, which is markedly positive. This trend signifies robust operational efficiency and robust core business performance. When analyzing the additional data, Merck has consistently maintained positive cash flows for the past 20 years. While there has been a slight decrease from €4,259,000,000 in 2022 to €3,784,000,000 in 2023, this overall positive trend over the two decades suggests the company’s sustained operational stronghold. The fact that Merck's cash flow has never dipped into negative territory is a strong indicator of its financial resilience and stability, thus earning it a point for this criterion.

Return on Assets (ROA) are growing?

Change in ROA (Return on Assets) measures the difference in a company's profitability from one year to the next relative to its total assets. It helps to understand whether a company is generating more profit from its assets over time.

Merck's ROA decreased from 0.0708 in 2022 to 0.0582 in 2023, a decline of approximately 23%. This is a negative trend, resulting in a score of 0 points for this criterion in the Piotroski Analysis. While Merck shows a decreasing ROA, the industry median ROA stands at 0.5013 in 2023, indicating Merck's performance is below average when compared to peers. Over the past 20 years, Merck's ROA has been volatile but generally in alignment with industry trends.

Operating Cashflow are higher than Netincome?

This criterion compares operating cash flow with net income, highlighting the quality of earnings.

For the fiscal year 2023, Merck (MRK.DE) reported an operating cash flow of €3,784 million, notably higher than its net income of €2,824 million. This discrepancy is a positive indicator, suggesting that the company's profitability is backed by strong cash earnings rather than accounting adjustments. Over the past 20 years, Merck's cash flow from operations has generally trended upward, increasing from €752 million in 2003 to a peak of €5,246 million in 2020, before settling at €3,784 million in 2023. In contrast, net income has shown more variability, influenced by factors such as significant peaks in 2007 (€3,520 million) and 2018 (€3,374 million). The history of accruals, hovering around 0.078 for 2023, suggests that Merck has maintained a relatively low accrual rate over the years, adding further credibility to its earnings quality.

Liquidity of Merck (MRK.DE)

Leverage is declining?

Change in Leverage examines whether the company's leverage, or debt relative to its equity, has decreased from the previous year. A decreasing leverage is typically seen as a positive sign of risk management.

For Merck (MRK.DE), the leverage has increased from 0.1896 in 2022 to 0.1905 in 2023. This slight increase indicates a rise in the company's debt relative to its equity, which may be perceived as augmented risk exposure. Reviewing the last 20 years, Merck’s leverage rose steeply in 2013, reaching 0.2747 but has generally been below that peak since. The trend indicates active but inconsistent leverage management. Therefore, Merck does not score a point in this criterion as the leverage increased.

Current Ratio is growing?

Current Ratio measures a company's ability to pay off its short-term liabilities with its short-term assets. It is important because it indicates the liquidity and short-term financial health of the company.

Merck's Current Ratio increased from 1.2824 in 2022 to 1.4246 in 2023, representing a trend of improving liquidity. This favorable development means Merck has gained more capacity to cover its short-term liabilities compared to the previous year—for which we add 1 point in the Piotroski score. Over the last two decades, Merck's current ratio fluctuated significantly but has remained mostly below the industry median, which was at 2.1191 in 2023. This illustrates that, while improving, Merck's liquidity is still trailing behind the general industry standard. Nonetheless, the increasing trend is a positive indicator for investors.

Number of shares not diluted?

Outstanding Shares reflect the number of shares held by all shareholders. It is used in stock-based metrics like EPS.

The outstanding shares of Merck (MRK.DE) remained flat at 434,777,878 between 2022 and 2023. Over the last 20 years, the number of shares saw significant increases between 2007 and 2008 from 431.8 million to 434.8 million, after which it has stabilized at around 434.8 million. Therefore, there is no change in outstanding shares from 2022 to 2023, resulting in 0 points for this criterion.

Operating of Merck (MRK.DE)

Cross Margin is growing?

Gross Margin represents the portion of revenue that exceeds the production costs. It is crucial as it reflects the company's efficiency in managing its production costs relative to its revenue, thus impacting profitability.

Merck's gross margin has decreased from 61.65% in 2022 to 59.03% in 2023, indicating a reduction in efficiency in managing production costs relative to revenue. This 2.62% decline translates to a 0-point increase for Merck in the Piotroski Score, as gross margin is a significant indicator of operational efficiency and cost management prowess. Historical data since 2003 shows that Merck's gross margin has fluctuated, reaching its peak in 2007 (74.78%) and then experiencing a general decline. When compared to industry median gross margins, Merck consistently remained above the industry median until 2021. This recent decline puts pressure on Merck's continuing competitive advantage over its peers.

Asset Turnover Ratio is growing?

Asset turnover measures a firm's efficiency in using its assets to generate sales. It is calculated by dividing a company's total revenue by its average total assets. A higher ratio indicates better performance.

The Asset Turnover ratio for Merck has decreased from 0.4735 in 2022 to 0.4327 in 2023. This decline in asset turnover implies that Merck has become less efficient in utilizing its assets to generate revenue compared to the previous year. Over the last 20 years, the trend appears to be generally declining, with the highest asset turnover of 0.9939 in 2003 and a gradual downturn to the present ratio. The consistency of this downward trend could signal potential operational inefficiencies or strategic missteps in maximizing asset utility. Based on the criteria, Merck scores 0 points since the asset turnover has not improved.