RL 181.58 (-1.28%)
US7512121010Manufacturing - Apparel & AccessoriesApparel Manufacturing

Last update on 2024-06-06

Ralph Lauren (RL) - Piotroski F-Score Analysis for Year 2023 (Final Score: 5/9)

Ralph Lauren (RL) Piotroski F-Score Analysis 2023: Final Score 5/9, evaluating financial health, profitability, liquidity, leverage, 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: 5

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

Ralph Lauren (RL) has a Piotroski F-Score of 5 out of 9, indicating a mixed financial health with several strengths and weaknesses. The company has shown a positive net income and positive operating cash flow for 2023, which shows profitability. Moreover, the company has a growing current ratio and a decrease in outstanding shares, signaling good liquidity and shareholder-friendly actions. However, there are some concerns such as a declining return on assets, higher leverage, and a decrease in gross margin. Additionally, the operating cash flow being lower than the net income suggests potential issues in cash earnings quality. Overall, RL shows signs of recovery and efficiency but faces challenges in some aspects of financial health.

Insights for Value Investors Seeking Stable Income

Overall, Ralph Lauren (RL) presents a mixed but cautiously optimistic investment opportunity. The positive aspects such as profitability, liquidity improvement, and share repurchase programs are encouraging. However, the concerns like declining ROA, higher leverage, and reduced gross margins cannot be ignored. If you are an investor looking for potential recovery and efficiency within a respected brand, RL might be worth a closer look. Despite the caution, given the company's strengths, if management addresses the concerns, it could prove to be a valuable investment over time. Therefore, they may warrant further research to make an informed decision.

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

Profitability of Ralph Lauren (RL)

Company has a positive net income?

The net income criterion checks if the company has generated a positive net income in the most recent financial year. Positive net income reflects a company's profitability.

Historical Net Income of Ralph Lauren (RL)

For Ralph Lauren (RL), the net income in 2023 is $522.7 million, which is positive. This demonstrates a return to profitability and adds 1 point in the Piotroski score. Historically, RL's net income has mostly been positive over the past 20 years, except for 2017 and 2021 where net income was negative. The positive net income in 2023 indicates a favorable trend in profitability and evident recovery from previous financial downturns.

Company has a positive cash flow?

Operating cash flow (CFO) indicates the amount of cash generated by a company’s normal business operations. This is important as it signifies positive or negative cash flows from core business activities.

Historical Operating Cash Flow of Ralph Lauren (RL)

In 2023, Ralph Lauren (RL) reported a cash flow from operations (CFO) of $411 million. A positive CFO is a favorable indicator, as it means the company is generating sufficient cash through its operational activities. However, compared with previous years such as 2011 with $885.3 million or 2015 with $894 million, $411 million appears considerably lower, indicating a decline. Despite being positive, this trend could signal a potential issue regarding Ralph Lauren’s ability to maintain prior cash generation levels.

Return on Assets (ROA) are growing?

The Change in Return on Assets (ROA) criterion measures the year-over-year improvement in the ability of the company to generate profit from its assets. This is a fundamental indicator of management efficiency.

Historical change in Return on Assets (ROA) of Ralph Lauren (RL)

In 2022, Ralph Lauren reported an ROA of 0.0769, while in 2023, the ROA decreased slightly to 0.072. Evidently, the ROA did not increase but instead showed a marginal decline. This would result in assigning 0 points for this criterion. Looking at the last 20 years, Ralph Lauren saw fluctuating operating cash flow, notably peaking in 2013 at 1,018.9 million. Comparatively, RL’s ROA in 2023 is lesser than the industry's median ROA, which stands at 0.5464. This puts RL at a competitive disadvantage in this specific metric.

Operating Cashflow are higher than Netincome?

One of the key Piotroski criteria involves determining whether the operating cash flow of a company is higher than its net income. A higher operating cash flow compared to net income indicates that the company is effectively converting its profits into cash, which is crucial for maintaining liquidity and funding operations. This metric helps in assessing the quality of the earnings.

Historical accruals of Ralph Lauren (RL)

In the case of Ralph Lauren (RL) for the year 2023, the operating cash flow is $411 million, which is lower than the net income of $522.7 million. According to Piotroski’s criterion, this does not meet the desirable condition, thus it would score 0 points. Over the past 20 years, RL has shown varying trends in operating cash flow and net income, but the metric in 2023 failed to surpass net income, reflecting a potential issue in cash earnings quality. Investors should scrutinize the reasons behind this deviation and consider its implications.

Liquidity of Ralph Lauren (RL)

Leverage is declining?

Change in leverage measures the difference in debt relative to equity year-over-year. It's crucial as increased leverage can imply higher risk.

Historical leverage of Ralph Lauren (RL)

Evaluating Ralph Lauren (RL), the leverage ratio stood at 0.3379 in 2022 and rose to 0.3822 in 2023. This notable increase means that RL's leverage went up, signaling potentially higher financial risk. Given this upward trend, this criterion merits 0 points. Looking historically, RL's leverage over the past two decades varied significantly, peaking in recent years; a substantial rise from as low as 0.0071 in 2013, indicating a shift towards greater debt utilization compared to equity.

Current Ratio is growing?

The first criterion in the Piotroski analysis is the change in the current ratio, which is defined as the company's current assets divided by its current liabilities. This measures a company's ability to pay off its short-term liabilities with its short-term assets. A higher current ratio indicates better liquidity and potentially less financial risk.

Historical Current Ratio of Ralph Lauren (RL)

For Ralph Lauren (RL), the current ratio increased from 1.8696 in 2022 to 2.2257 in 2023. This suggests an improvement in the company's liquidity position, allowing more flexibility to cover short-term liabilities. Specifically, the current ratio's growth by approximately 19% from 2022 to 2023 is a positive signal, reflecting a stronger balance sheet. Additionally, over the last 20 years, Ralph Lauren's current ratio generally moves higher compared to the industry median in 2023 (2.2257 vs. 1.64), which enhances the company's standing within its sector. Therefore, for this Piotroski criterion, Ralph Lauren earns 1 point.

Number of shares not diluted?

Change in Shares Outstanding measures whether a company is managing dilution through share repurchases. A decrease is favorable.

Historical outstanding shares of Ralph Lauren (RL)

Ralph Lauren's outstanding shares decreased from 73,000,000 in 2022 to 67,700,000 in 2023, adding 1 point for this criterion. The consistent reduction over 20 years (e.g., from 99,263,054 in 2003 to 67,700,000 in 2023) underscores effective share repurchase programs, benefiting shareholder value.

Operating of Ralph Lauren (RL)

Cross Margin is growing?

Gross Margin is the ratio of gross profit to revenue and indicates the financial health and efficiency of a company in managing production costs.

Historical gross margin of Ralph Lauren (RL)

In 2023, Ralph Lauren's Gross Margin was 0.6465 compared to 0.667 in 2022. This indicates a decrease in Gross Margin. Over a broader timeline, Ralph Lauren has maintained Gross Margins significantly above the industry median, such as 0.6502 in 2021 and 0.667 in 2022, reflecting superior cost management. However, the recent decline suggests potential challenges in managing production costs or pricing power, which necessitates close monitoring. Therefore, for this criterion, Ralph Lauren will receive 0 points.

Asset Turnover Ratio is growing?

Asset Turnover measures a firm's efficiency in using its assets to generate sales. A higher ratio typically indicates better performance.

Historical asset turnover ratio of Ralph Lauren (RL)

In 2023, Ralph Lauren's Asset Turnover ratio was 0.8879, up from 0.7966 in 2022. This improvement suggests increased efficiency in utilizing assets to generate revenue. Over the last 20 years, the highest Asset Turnover was 1.323 in 2005, while the lowest was 0.5803 in 2021. The trend in 2023 is favorable and earns RL 1 point in the Piotroski Score, indicating enhanced operational efficiency following a recovery from the low in 2021.


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