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GuruFocus has detected 3 Warning Signs with Herbalife Ltd $HLF.
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Herbalife Ltd (NYSE:HLF)
Piotroski F-Score
6 (As of Today)

The zones of discrimination were as such:

Good or high score = 7, 8, 9
Bad or low score = 0, 1, 2, 3

Herbalife Ltd has an F-score of 6 indicating the company's financial situation is typical for a stable company.

HLF' s Piotroski F-Score Range Over the Past 10 Years
Min: 4   Max: 8
Current: 6

4
8

During the past 13 years, the highest Piotroski F-Score of Herbalife Ltd was 8. The lowest was 4. And the median was 7.


Definition

How is the Piotroski F-Score calculated?

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.

This Year (Dec16) TTM:Last Year (Dec15) TTM:
Net Income was 95.8 + -22.9 + 87.7 + 99.4 = $260 Mil.
Cash Flow from Operations was 141.1 + 226.9 + -118.1 + 117.4 = $367 Mil.
Revenue was 1119.6 + 1201.8 + 1122 + 1045 = $4,488 Mil.
Gross Profit was 906.5 + 965.5 + 912.9 + 848.9 = $3,634 Mil.
Average Total Assets from the begining of this year (Dec15)
to the end of this year (Dec16) was
(2477.9 + 2386.3 + 2613.9 + 2532.6 + 2565.4) / 5 = $2515.22 Mil.
Total Assets at the begining of this year (Dec15) was $2,478 Mil.
Long-Term Debt was $1,438 Mil.
Total Current Assets was $1,463 Mil.
Total Current Liabilities was $792 Mil.
Net Income was 78.2 + 82.8 + 93.6 + 84.5 = $339 Mil.

Revenue was 1105.4 + 1162.3 + 1102.9 + 1098.4 = $4,469 Mil.
Gross Profit was 890 + 933 + 896 + 894 = $3,613 Mil.
Average Total Assets from the begining of last year (Dec14)
to the end of last year (Dec15) was
(2355 + 2388.9 + 2415.1 + 2421.5 + 2477.9) / 5 = $2411.68 Mil.
Total Assets at the begining of last year (Dec14) was $2,355 Mil.
Long-Term Debt was $1,393 Mil.
Total Current Assets was $1,566 Mil.
Total Current Liabilities was $1,024 Mil.

Profitability

Question 1. Return on Assets (ROA)

Net income before extraordinary items for the year divided by total assets at the beginning of the year.

Score 1 if positive, 0 if negative.

Herbalife Ltd's current net income (TTM) was 260. ==> Positive ==> Score 1.

Question 2. Cash Flow Return on Assets (CFROA)

Net cash flow from operating activities (operating cash flow) divided by total assets at the beginning of the year.

Score 1 if positive, 0 if negative.

Herbalife Ltd's current cash flow from operations (TTM) was 367. ==> Positive ==> Score 1.

Question 3. Change in Return on Assets

Compare this year’s return on assets (1) to last year’s return on assets.

Score 1 if it’s higher, 0 if it’s lower.

Herbalife Ltd's return on assets of this year was 0.10492756. Herbalife Ltd's return on assets of last year was 0.14399151. ==> Last year is higher ==> Score 0.

Question 4. Quality of Earnings (Accrual)

Compare Cash flow return on assets (2) to return on assets (1)

Score 1 if CFROA > ROA, 0 if CFROA <= ROA.

Herbalife Ltd's current net income (TTM) was 260. Herbalife Ltd's current cash flow from operations (TTM) was 367. ==> 367 > 260 ==> CFROA > ROA ==> Score 1.

Funding

Question 5. Change in Gearing or Leverage

Compare this year’s gearing (long-term debt divided by average total assets) to last year’s gearing.

Score 0 if this year's gearing is higher, 1 otherwise.

Gearing (This Year: Dec16)=Long-Term Debt/Average Total Assets from Dec15 to Dec16
=1438.4/2515.22
=0.5718784

Gearing (Last Year: Dec15)=Long-Term Debt/Average Total Assets from Dec14 to Dec15
=1392.5/2411.68
=0.57739833

Herbalife Ltd's gearing of this year was 0.5718784. Herbalife Ltd's gearing of last year was 0.57739833. ==> This year is lower or equal to last year. ==> Score 1.

Question 6. Change in Working Capital (Liquidity)

Compare this year’s current ratio (current assets divided by current liabilities) to last year’s current ratio.

Score 1 if this year'’s current ratio is higher, 0 if it’s lower

Current Ratio (This Year: Dec16)=Total Current Assets/Total Current Liabilities
=1462.5/791.5
=1.84775742

Current Ratio (Last Year: Dec15)=Total Current Assets/Total Current Liabilities
=1566.3/1024.4
=1.52899258

Herbalife Ltd's current ratio of this year was 1.84775742. Herbalife Ltd's current ratio of last year was 1.52899258. ==> This year's current ratio is higher. ==> Score 1.

Question 7. Change in Shares in Issue

Compare the number of shares in issue this year, to the number in issue last year.

Score 0 if there is larger number of shares in issue this year, 1 otherwise.

Herbalife Ltd's number of shares in issue this year was 86.1. Herbalife Ltd's number of shares in issue last year was 85.3. ==> There is larger number of shares in issue this year. ==> Score 0.

Efficiency

Question 8. Change in Gross Margin

Compare this year’s gross margin (gross profit divided by sales) to last year’s.

Score 1 if this year’s gross margin is higher, 0 if it’s lower.

Gross Margin (This Year: TTM)=Gross Profit/Revenue
=3633.8/4488.4
=0.80959808

Gross Margin (Last Year: TTM)=Gross Profit/Revenue
=3613/4469
=0.80845827

Herbalife Ltd's gross margin of this year was 0.80959808. Herbalife Ltd's gross margin of last year was 0.80845827. ==> This year's gross margin is higher. ==> Score 1.

Question 9. Change in asset turnover

Compare this year’s asset turnover (total sales for the year divided by total assets at the beginning of the year) to last year’s asset turnover ratio.

Score 1 if this year’s asset turnover ratio is higher, 0 if it’s lower

Asset Turnover (This Year)=Revenue (TTM)/Total Assets at the Beginning of This Year (Dec15)
=4488.4/2477.9
=1.81137253

Asset Turnover (Last Year)=Revenue (TTM)/Total Assets at the Beginning of Last Year (Dec14)
=4469/2355
=1.89766454

Herbalife Ltd's asset turnover of this year was 1.81137253. Herbalife Ltd's asset turnover of last year was 1.89766454. ==> Last year's asset turnover is higher ==> Score 0.

Evaluation

Piotroski F-Score= Que. 1+ Que. 2+ Que. 3+Que. 4+Que. 5+Que. 6+Que. 7+Que. 8+Que. 9
=1+1+0+1+1+1+0+1+0
=6

Good or high score = 7, 8, 9
Bad or low score = 0, 1, 2, 3

Herbalife Ltd has an F-score of 6 indicating the company's financial situation is typical for a stable company.


Explanation

The developer of the system is Joseph D. Piotroski is relatively unknown accounting professor who shuns publicity and rarely gives interviews.

He graduated from the University of Illinois with a B.S. in accounting in 1989, received an M.B.A. from Indiana University in 1994. Five years later, in 1999, after earning a Ph.D. in accounting from the University of Michigan, he became an associate professor of accounting at the University of Chicago.

In 2000, he wrote a research paper called "Value Investing: The Use of Historical Financial Statement Information to Separate Winners from Losers" (pdf).

He wanted to see if he can develop a system (using a simple nine-point scoring system) that can increase the returns of a strategy of investing in low price to book (referred to in the paper as high book to market) value companies.

What he found was something that exceeded his most optimistic expectations.

Buying only those companies that scored highest (8 or 9) on his nine-point scale, or F-Score as he called it, over the 20 year period from 1976 to 1996 led to an average out-performance over the market of 13.4%.

Even more impressive were the results of a strategy of investing in the highest F-Score companies (8 or 9) and shorting companies with the lowest F-Score (0 or 1).

Over the same period from 1976 to 1996 (20 years) this strategy led to an average yearly return of 23%, substantially outperforming the average S&P 500 index return of 15.83% over the same period.


Related Terms

Net Income, Cash Flow from Operations, Revenue, Gross Profit, Total Assets, Long-Term Debt, Total Current Assets, Total Current Liabilities


Historical Data

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.

Herbalife Ltd Annual Data

Dec07Dec08Dec09Dec10Dec11Dec12Dec13Dec14Dec15Dec16
Question 1 1111111111
Question 2 1111111111
Question 3 1101100010
Question 4 1111111111
Question 5 0111000011
Question 6 0001101001
Question 7 1110111110
Question 8 0101100111
Question 9 0101101000
F-score 5858846576

Herbalife Ltd Quarterly Data

Sep14Dec14Mar15Jun15Sep15Dec15Mar16Jun16Sep16Dec16
Question 1 1111111111
Question 2 1111111111
Question 3 0000111000
Question 4 1111111111
Question 5 0011111111
Question 6 0000000001
Question 7 1111110100
Question 8 1111111111
Question 9 0000001000
F-score 5566777656
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