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Legg Mason Inc (NYSE:LM)
Piotroski F-Score
3 (As of Today)

Warning Sign:

Piotroski F-Score of 3 is low, which usually implies poor business operation.

The zones of discrimination were as such:

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

Legg Mason Inc has an F-score of 3. It is a bad or low score, which usually implies poor business operation.

LM' s Piotroski F-Score Range Over the Past 10 Years
Min: 1   Max: 8
Current: 3

1
8

During the past 13 years, the highest Piotroski F-Score of Legg Mason Inc was 8. The lowest was 1. And the median was 5.


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 (Sep16) TTM:Last Year (Sep15) TTM:
Net Income was -138.626 + -45.273 + 33.452 + 66.441 = $-84 Mil.
Cash Flow from Operations was 154.684 + 148.059 + -165.97 + 303.829 = $441 Mil.
Revenue was 659.557 + 619.551 + 700.165 + 748.37 = $2,728 Mil.
Gross Profit was 659.557 + 619.551 + 700.165 + 748.37 = $2,728 Mil.
Average Total Assets from the begining of this year (Sep15)
to the end of this year (Sep16) was
(6877.954 + 6838.473 + 7520.446 + 8296.593 + 8254.55) / 5 = $7557.6032 Mil.
Total Assets at the begining of this year (Sep15) was $6,878 Mil.
Long-Term Debt was $2,222 Mil.
Total Current Assets was $1,661 Mil.
Total Current Liabilities was $681 Mil.
Net Income was 77.036 + 82.959 + 94.548 + 64.319 = $319 Mil.

Revenue was 718.984 + 702.346 + 708.65 + 673.086 = $2,803 Mil.
Gross Profit was 718.984 + 2801.178 + 708.65 + 673.086 = $4,902 Mil.
Average Total Assets from the begining of last year (Sep14)
to the end of last year (Sep15) was
(6755.032 + 7043.23 + 7064.834 + 6829.388 + 6877.954) / 5 = $6914.0876 Mil.
Total Assets at the begining of last year (Sep14) was $6,755 Mil.
Long-Term Debt was $1,060 Mil.
Total Current Assets was $1,766 Mil.
Total Current Liabilities was $596 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.

Legg Mason Inc's current net income (TTM) was -84. ==> Negative ==> Score 0.

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.

Legg Mason Inc's current cash flow from operations (TTM) was 441. ==> 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.

ROA (This Year)=Net Income (TTM)/Total Assets at the Beginning of This Year (Sep15)
=-84.006/6877.954
=-0.01221381

ROA (Last Year)=Net Income (TTM)/Total Assets at the Beginning of Last Year (Sep14)
=318.862/6755.032
=0.04720363

Legg Mason Inc's return on assets of this year was -0.01221381. Legg Mason Inc's return on assets of last year was 0.04720363. ==> 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.

Legg Mason Inc's current net income (TTM) was -84. Legg Mason Inc's current cash flow from operations (TTM) was 441. ==> 441 > -84 ==> 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: Sep16)=Long-Term Debt/Average Total Assets from Sep15 to Sep16
=2221.896/7557.6032
=0.29399479

Gearing (Last Year: Sep15)=Long-Term Debt/Average Total Assets from Sep14 to Sep15
=1059.902/6914.0876
=0.153296

Legg Mason Inc's gearing of this year was 0.29399479. Legg Mason Inc's gearing of last year was 0.153296. ==> Last year is lower than this year ==> Score 0.

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: Sep16)=Total Current Assets/Total Current Liabilities
=1661.476/681.345
=2.4385238

Current Ratio (Last Year: Sep15)=Total Current Assets/Total Current Liabilities
=1765.54/596.459
=2.96003581

Legg Mason Inc's current ratio of this year was 2.4385238. Legg Mason Inc's current ratio of last year was 2.96003581. ==> Last year's current ratio is higher ==> Score 0.

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.

Legg Mason Inc's number of shares in issue this year was 102.1. Legg Mason Inc's number of shares in issue last year was 108.8. ==> There is smaller number of shares in issue this year, or the same. ==> Score 1.

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
=2727.643/2727.643
=1

Gross Margin (Last Year: TTM)=Gross Profit/Revenue
=4901.898/2803.066
=1.74876296

Legg Mason Inc's gross margin of this year was 1. Legg Mason Inc's gross margin of last year was 1.74876296. ==> Last year's gross margin is higher ==> Score 0.

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 (Sep15)
=2727.643/6877.954
=0.39657767

Asset Turnover (Last Year)=Revenue (TTM)/Total Assets at the Beginning of Last Year (Sep14)
=2803.066/6755.032
=0.41495969

Legg Mason Inc's asset turnover of this year was 0.39657767. Legg Mason Inc's asset turnover of last year was 0.41495969. ==> 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
=0+1+0+1+0+0+1+0+0
=3

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

Legg Mason Inc has an F-score of 3. It is a bad or low score, which usually implies poor business operation.


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.

Legg Mason Inc Annual Data

Mar07Mar08Mar09Mar10Mar11Mar12Mar13Mar14Mar15Mar16
Question 1 1101110110
Question 2 1111111111
Question 3 0001100100
Question 4 1111111111
Question 5 1001010100
Question 6 1011101001
Question 7 0110011111
Question 8 0000000010
Question 9 1101100110
F-score 6547654764

Legg Mason Inc Quarterly Data

Jun14Sep14Dec14Mar15Jun15Sep15Dec15Mar16Jun16Sep16
Question 1 1111111000
Question 2 1111111111
Question 3 1100010000
Question 4 1111111111
Question 5 1110000000
Question 6 0100101100
Question 7 1111111111
Question 8 0001111000
Question 9 1111010010
F-score 7866676443
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