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GuruFocus has detected 5 Warning Signs with Varian Medical Systems Inc $VAR.
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Varian Medical Systems Inc (NYSE:VAR)
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

Varian Medical Systems Inc has an F-score of 6 indicating the company's financial situation is typical for a stable company.

VAR' s Piotroski F-Score Range Over the Past 10 Years
Min: 4   Max: 9
Current: 6

4
9

During the past 13 years, the highest Piotroski F-Score of Varian Medical Systems Inc was 9. The lowest was 4. 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 (Dec16) TTM:Last Year (Dec15) TTM:
Net Income was 96.971 + 98.795 + 117.507 + 20.4 = $334 Mil.
Cash Flow from Operations was 31.827 + 95.217 + 151.956 + 82.2 = $361 Mil.
Revenue was 758.767 + 789.419 + 912.481 + 763.3 = $3,224 Mil.
Gross Profit was 317.218 + 346.43 + 387.96 + 334.5 = $1,386 Mil.
Average Total Assets from the begining of this year (Dec15)
to the end of this year (Dec16) was
(3726.662 + 3866.258 + 3759.452 + 3816 + 3684.8) / 5 = $3770.6344 Mil.
Total Assets at the begining of this year (Dec15) was $3,727 Mil.
Long-Term Debt was $275 Mil.
Total Current Assets was $2,421 Mil.
Total Current Liabilities was $1,524 Mil.
Net Income was 105.969 + 113.506 + 98.711 + 89 = $407 Mil.

Revenue was 759.406 + 784.011 + 817.829 + 757.1 = $3,118 Mil.
Gross Profit was 322.538 + 314.976 + 318.178 + 309.7 = $1,265 Mil.
Average Total Assets from the begining of last year (Dec14)
to the end of last year (Dec15) was
(3396.302 + 3459.536 + 3531.579 + 3578.7 + 3726.662) / 5 = $3538.5558 Mil.
Total Assets at the begining of last year (Dec14) was $3,396 Mil.
Long-Term Debt was $345 Mil.
Total Current Assets was $2,640 Mil.
Total Current Liabilities was $1,589 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.

Varian Medical Systems Inc's current net income (TTM) was 334. ==> 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.

Varian Medical Systems Inc's current cash flow from operations (TTM) was 361. ==> 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 (Dec15)
=333.673/3726.662
=0.0895367

ROA (Last Year)=Net Income (TTM)/Total Assets at the Beginning of Last Year (Dec14)
=407.186/3396.302
=0.11989099

Varian Medical Systems Inc's return on assets of this year was 0.0895367. Varian Medical Systems Inc's return on assets of last year was 0.11989099. ==> 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.

Varian Medical Systems Inc's current net income (TTM) was 334. Varian Medical Systems Inc's current cash flow from operations (TTM) was 361. ==> 361 > 334 ==> 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
=274.6/3770.6344
=0.07282594

Gearing (Last Year: Dec15)=Long-Term Debt/Average Total Assets from Dec14 to Dec15
=345/3538.5558
=0.0974974

Varian Medical Systems Inc's gearing of this year was 0.07282594. Varian Medical Systems Inc's gearing of last year was 0.0974974. ==> 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
=2421.3/1524.1
=1.58867528

Current Ratio (Last Year: Dec15)=Total Current Assets/Total Current Liabilities
=2640.216/1589.055
=1.6615007

Varian Medical Systems Inc's current ratio of this year was 1.58867528. Varian Medical Systems Inc's current ratio of last year was 1.6615007. ==> 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.

Varian Medical Systems Inc's number of shares in issue this year was 94.2. Varian Medical Systems Inc's number of shares in issue last year was 97.8. ==> 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
=1386.108/3223.967
=0.42993864

Gross Margin (Last Year: TTM)=Gross Profit/Revenue
=1265.392/3118.346
=0.40578948

Varian Medical Systems Inc's gross margin of this year was 0.42993864. Varian Medical Systems Inc's gross margin of last year was 0.40578948. ==> 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)
=3223.967/3726.662
=0.86510851

Asset Turnover (Last Year)=Revenue (TTM)/Total Assets at the Beginning of Last Year (Dec14)
=3118.346/3396.302
=0.91815922

Varian Medical Systems Inc's asset turnover of this year was 0.86510851. Varian Medical Systems Inc's asset turnover of last year was 0.91815922. ==> 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+0+1+1+0
=6

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

Varian Medical Systems Inc 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.

Varian Medical Systems Inc Annual Data

Sep07Sep08Sep09Sep10Sep11Sep12Sep13Sep14Sep15Sep16
Question 1 1111111111
Question 2 1111111111
Question 3 0100100010
Question 4 1101111110
Question 5 1111110111
Question 6 0110011000
Question 7 1111111111
Question 8 1111100101
Question 9 0100110010
F-score 6966875675

Varian Medical Systems Inc Quarterly Data

Sep14Dec14Mar15Jun15Sep15Dec15Mar16Jun16Sep16Dec16
Question 1 1111111111
Question 2 1111111111
Question 3 0000110000
Question 4 1101111001
Question 5 1111111111
Question 6 0000000000
Question 7 1111111111
Question 8 1110000011
Question 9 0000111000
F-score 6655776456
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