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Watsco, Inc. (NYSE:WSO)
Piotroski F-Score
6 (As of Today)

The zones of discrimination were as such:

Good or high score = 8 or 9
Bad or low score = 0 or 1

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

WSO' s 10-Year Piotroski F-Score Range
Min: 4   Max: 8
Current: 6

4
8

During the past 13 years, the highest Piotroski F-Score of Watsco, Inc. was 8. 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 own currency.

This Year (Dec13) TTM:Last Year (Dec12) TTM:
Net Income was 17.321 + 45.699 + 51.318 + 13.385 = $128 Mil.
Cash Flow from Operations was 99.086 + 128.09 + -59.408 + -17.499 = $150 Mil.
Revenue was 827.352 + 1081.893 + 1120.452 + 713.633 = $3,743 Mil.
Gross Profit was 198.53 + 258.597 + 266.68 + 175.446 = $899 Mil.
Total Assets at the begining of this year (Dec12) was $1,682 Mil.
Total Assets was $1,670 Mil.
Long-Term Debt was $230 Mil.
Total Current Assets was $1,021 Mil.
Total Current Liabilities was $244 Mil.
Net Income was 14.759 + 41.005 + 39.103 + 8.466 = $103 Mil.

Revenue was 765.54 + 1020.859 + 1011.801 + 633.512 = $3,432 Mil.
Gross Profit was 182.793 + 242.505 + 238.475 + 150.622 = $814 Mil.
Total Assets at the begining of last year (Dec11) was $1,268 Mil.
Total Assets was $1,682 Mil.
Long-Term Debt was $316 Mil.
Total Current Assets was $1,015 Mil.
Total Current Liabilities was $282 Mil.

Profitability

Q1. 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.

Watsco, Inc.'s current net income was 128. ==> Positive ==> Score 1.

Q2. 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.

Watsco, Inc.'s current cash flow from operations was 150. ==> Positive ==> Score 1.

Q3. 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/Total Assets at the beginning of this year (Dec12)
=127.723/1682.055
=0.07593271

ROA (Last Year)=Net Income/Total Assets at the beginning of last year (Dec11)
=103.333/1268.148
=0.08148339

Watsco, Inc.'s return on assets of this year was 0.07593271. Watsco, Inc.'s return on assets of last year was 0.08148339. ==> Last year is higher ==> Score 0.

Q4. 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.

Watsco, Inc.'s current net income was 128. Watsco, Inc.'s current cash flow from operations was 150. ==> 150 > 128 ==> CFROA > ROA ==> Score 1.

Funding

Q5. Change in Gearing or Leverage

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

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

Gearing (This Year)=Long-Term Debt/Total Assets
=230.044/1669.531
=0.13778959

Gearing (Last Year)=Long-Term Debt/Total Assets
=316.182/1682.055
=0.18797364

Watsco, Inc.'s gearing of this year was 0.13778959. Watsco, Inc.'s gearing of last year was 0.18797364. ==> This year is lower. ==> Score 1.

Q6. 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)=Total Current Assets/Total Current Liabilities
=1021.102/243.506
=4.19333405

Current Ratio (Last Year)=Total Current Assets/Total Current Liabilities
=1015.451/282.358
=3.59632452

Watsco, Inc.'s current ratio of this year was 4.19333405. Watsco, Inc.'s current ratio of last year was 3.59632452. ==> This year's current ratio is higher. ==> Score 1.

Q7. Change in Shares in Issue

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

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

Watsco, Inc.'s number of shares in issue this year was 32.3. Watsco, Inc.'s number of shares in issue last year was 32.2. ==> There is more number of shares in issue this year. ==> Score 0.

Efficiency

Q8. 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)=Gross Profit/Revenue
=899.253/3743.33
=0.24022809

Gross Margin (Last Year)=Gross Profit/Revenue
=814.395/3431.712
=0.23731449

Watsco, Inc.'s gross margin of this year was 0.24022809. Watsco, Inc.'s gross margin of last year was 0.23731449. ==> This year's gross margin is higher. ==> Score 1.

Q9. Change in asset turnover

Compare this year’s asset turnover (total sales 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/Total Assets at the beginning of this year (Dec12)
=3743.33/1682.055
=2.22545042

Asset Turnover (Last Year)=Revenue/Total Assets at the beginning of last year (Dec11)
=3431.712/1268.148
=2.70608162

Watsco, Inc.'s asset turnover of this year was 2.22545042. Watsco, Inc.'s asset turnover of last year was 2.70608162. ==> Last year's asset turnover is higher ==> Score 0.

Evaluation

Piotroski F-Score=Q1+Q2+Q3+Q4+Q5+Q6+Q7+Q8+Q9
=1+1+0+1+1+1+0+1+0
=6

Good or high score = 8 or 9

Bad or low score = 0 or 1

Watsco, 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 own currency.

Watsco, Inc. Annual Data

Dec04Dec05Dec06Dec07Dec08Dec09Dec10Dec11Dec12Dec13
Q1 1111111111
Q2 1111111111
Q3 1110001110
Q4 1001111011
Q5 1110111101
Q6 0011100101
Q7 0001100000
Q8 1010100101
Q9 1100010010
F-score 7565755656

Watsco, Inc. Quarterly Data

Sep11Dec11Mar12Jun12Sep12Dec12Mar13Jun13Sep13Dec13
Q1 1111111111
Q2 0111111111
Q3 1111111100
Q4 0010111111
Q5 1110000001
Q6 0111101111
Q7 0000000000
Q8 1110000011
Q9 1011111000
F-score 5685656556
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