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GuruFocus has detected 3 Warning Signs with Red Hat Inc $RHT.
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Red Hat Inc (NYSE:RHT)
Piotroski F-Score
9 (As of Today)

Good Sign:

Piotroski F-Score of 9 is 9, indicating very healthy situation.

The zones of discrimination were as such:

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

Red Hat Inc has an F-score of 9. It is a good or high score, which usually indicates a very healthy situation.

RHT' s Piotroski F-Score Range Over the Past 10 Years
Min: 2   Max: 9
Current: 9

2
9

During the past 13 years, the highest Piotroski F-Score of Red Hat Inc was 9. The lowest was 2. And the median was 6.


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 (Feb17) TTM:Last Year (Feb16) TTM:
Net Income was 61.184 + 58.772 + 67.943 + 65.803 = $254 Mil.
Cash Flow from Operations was 232.297 + 96.802 + 136.359 + 318.259 = $784 Mil.
Revenue was 567.899 + 599.805 + 615.26 + 628.84 = $2,412 Mil.
Gross Profit was 483.851 + 512.134 + 524.807 + 536.633 = $2,057 Mil.
Average Total Assets from the begining of this year (Feb16)
to the end of this year (Feb17) was
(4155.099 + 4112.281 + 4100.756 + 4085.093 + 4535.185) / 5 = $4197.6828 Mil.
Total Assets at the begining of this year (Feb16) was $4,155 Mil.
Long-Term Debt was $746 Mil.
Total Current Assets was $2,316 Mil.
Total Current Liabilities was $1,891 Mil.
Net Income was 48.086 + 51.395 + 46.848 + 53.036 = $199 Mil.

Revenue was 481.001 + 504.148 + 523.58 + 543.502 = $2,052 Mil.
Gross Profit was 409.604 + 428.184 + 442.532 + 462.282 = $1,743 Mil.
Average Total Assets from the begining of last year (Feb15)
to the end of last year (Feb16) was
(3784.569 + 3760.28 + 3801.471 + 3899.205 + 4155.099) / 5 = $3880.1248 Mil.
Total Assets at the begining of last year (Feb15) was $3,785 Mil.
Long-Term Debt was $724 Mil.
Total Current Assets was $1,872 Mil.
Total Current Liabilities was $1,559 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.

Red Hat Inc's current net income (TTM) was 254. ==> 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.

Red Hat Inc's current cash flow from operations (TTM) was 784. ==> 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 (Feb16)
=253.702/4155.099
=0.06105799

ROA (Last Year)=Net Income (TTM)/Total Assets at the Beginning of Last Year (Feb15)
=199.365/3784.569
=0.05267839

Red Hat Inc's return on assets of this year was 0.06105799. Red Hat Inc's return on assets of last year was 0.05267839. ==> This year is higher. ==> Score 1.

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.

Red Hat Inc's current net income (TTM) was 254. Red Hat Inc's current cash flow from operations (TTM) was 784. ==> 784 > 254 ==> 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: Feb17)=Long-Term Debt/Average Total Assets from Feb16 to Feb17
=745.633/4197.6828
=0.17762967

Gearing (Last Year: Feb16)=Long-Term Debt/Average Total Assets from Feb15 to Feb16
=723.942/3880.1248
=0.18657699

Red Hat Inc's gearing of this year was 0.17762967. Red Hat Inc's gearing of last year was 0.18657699. ==> 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: Feb17)=Total Current Assets/Total Current Liabilities
=2315.702/1891.073
=1.22454395

Current Ratio (Last Year: Feb16)=Total Current Assets/Total Current Liabilities
=1872.433/1559.177
=1.20091112

Red Hat Inc's current ratio of this year was 1.22454395. Red Hat Inc's current ratio of last year was 1.20091112. ==> 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.

Red Hat Inc's number of shares in issue this year was 181.2. Red Hat Inc's number of shares in issue last year was 186.1. ==> 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
=2057.425/2411.804
=0.85306476

Gross Margin (Last Year: TTM)=Gross Profit/Revenue
=1742.602/2052.231
=0.84912566

Red Hat Inc's gross margin of this year was 0.85306476. Red Hat Inc's gross margin of last year was 0.84912566. ==> 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 (Feb16)
=2411.804/4155.099
=0.58044441

Asset Turnover (Last Year)=Revenue (TTM)/Total Assets at the Beginning of Last Year (Feb15)
=2052.231/3784.569
=0.5422628

Red Hat Inc's asset turnover of this year was 0.58044441. Red Hat Inc's asset turnover of last year was 0.5422628. ==> This year's asset turnover is higher. ==> Score 1.

Evaluation

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

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

Red Hat Inc has an F-score of 9. It is a good or high score, which usually indicates a very healthy situation.


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.

Red Hat Inc Annual Data

Feb08Feb09Feb10Feb11Feb12Feb13Feb14Feb15Feb16Feb17
Question 1 1111111111
Question 2 1111111111
Question 3 0011101001
Question 4 1111111111
Question 5 1111011011
Question 6 0100000101
Question 7 0110011111
Question 8 1010110011
Question 9 0111111101
F-score 5786677669

Red Hat Inc Quarterly Data

Nov14Feb15May15Aug15Nov15Feb16May16Aug16Nov16Feb17
Question 1 1111111111
Question 2 1111111111
Question 3 0000000011
Question 4 1111111111
Question 5 0000111111
Question 6 1111000001
Question 7 1111111111
Question 8 0000111111
Question 9 1111000011
F-score 6666666689
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