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GuruFocus has detected 6 Warning Signs with Ares Commercial Real Estate Corp $ACRE.
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Ares Commercial Real Estate Corp (NYSE:ACRE)
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

Ares Commercial Real Estate Corp has an F-score of 6 indicating the company's financial situation is typical for a stable company.

ACRE' s Piotroski F-Score Range Over the Past 10 Years
Min: 2   Max: 8
Current: 6

2
8

During the past 6 years, the highest Piotroski F-Score of Ares Commercial Real Estate Corp was 8. 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 (Mar17) TTM:Last Year (Mar16) TTM:
Net Income was 8.693 + 18.442 + 8.065 + 6.453 = $41.65 Mil.
Cash Flow from Operations was 15.612 + -33.235 + 8.353 + 6.203 = $-3.07 Mil.
Revenue was 18.929 + 20.776 + 23.508 + 21.127 = $84.34 Mil.
Gross Profit was 12.272 + 13.862 + 15.991 + 13.659 = $55.78 Mil.
Average Total Assets from the begining of this year (Mar16)
to the end of this year (Mar17) was
(1422.115 + 1332.071 + 1565.139 + 1373.703 + 1429) / 5 = $1424.4056 Mil.
Total Assets at the begining of this year (Mar16) was $1,422.12 Mil.
Long-Term Debt was $997.23 Mil.
Total Current Assets was $1,416.86 Mil.
Total Current Liabilities was $10.55 Mil.
Net Income was 8.967 + 9.379 + 8.877 + 5.136 = $32.36 Mil.

Revenue was 21.012 + 20.949 + 21.206 + 18.75 = $81.92 Mil.
Gross Profit was 13.927 + 13.886 + 14.203 + 11.982 = $54.00 Mil.
Average Total Assets from the begining of last year (Mar15)
to the end of last year (Mar16) was
(1589.781 + 1544.838 + 1502.186 + 1378.982 + 1422.115) / 5 = $1487.5804 Mil.
Total Assets at the begining of last year (Mar15) was $1,589.78 Mil.
Long-Term Debt was $920.32 Mil.
Total Current Assets was $1,299.77 Mil.
Total Current Liabilities was $18.84 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.

Ares Commercial Real Estate Corp's current net income (TTM) was 41.65. ==> 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.

Ares Commercial Real Estate Corp's current cash flow from operations (TTM) was -3.07. ==> Negative ==> Score 0.

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 (Mar16)
=41.653/1422.115
=0.02928947

ROA (Last Year)=Net Income (TTM)/Total Assets at the Beginning of Last Year (Mar15)
=32.359/1589.781
=0.02035438

Ares Commercial Real Estate Corp's return on assets of this year was 0.02928947. Ares Commercial Real Estate Corp's return on assets of last year was 0.02035438. ==> 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.

Ares Commercial Real Estate Corp's current net income (TTM) was 41.65. Ares Commercial Real Estate Corp's current cash flow from operations (TTM) was -3.07. ==> -3.07 <= 41.65 ==> CFROA <= ROA ==> Score 0.

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: Mar17)=Long-Term Debt/Average Total Assets from Mar16 to Mar17
=997.234/1424.4056
=0.70010536

Gearing (Last Year: Mar16)=Long-Term Debt/Average Total Assets from Mar15 to Mar16
=920.318/1487.5804
=0.61866774

Ares Commercial Real Estate Corp's gearing of this year was 0.70010536. Ares Commercial Real Estate Corp's gearing of last year was 0.61866774. ==> 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: Mar17)=Total Current Assets/Total Current Liabilities
=1416.858/10.545
=134.36301565

Current Ratio (Last Year: Mar16)=Total Current Assets/Total Current Liabilities
=1299.767/18.841
=68.98609416

Ares Commercial Real Estate Corp's current ratio of this year was 134.36301565. Ares Commercial Real Estate Corp's current ratio of last year was 68.98609416. ==> 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.

Ares Commercial Real Estate Corp's number of shares in issue this year was 28.5. Ares Commercial Real Estate Corp's number of shares in issue last year was 28.6. ==> 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
=55.784/84.34
=0.66141807

Gross Margin (Last Year: TTM)=Gross Profit/Revenue
=53.998/81.917
=0.65917941

Ares Commercial Real Estate Corp's gross margin of this year was 0.66141807. Ares Commercial Real Estate Corp's gross margin of last year was 0.65917941. ==> 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 (Mar16)
=84.34/1422.115
=0.05930603

Asset Turnover (Last Year)=Revenue (TTM)/Total Assets at the Beginning of Last Year (Mar15)
=81.917/1589.781
=0.05152722

Ares Commercial Real Estate Corp's asset turnover of this year was 0.05930603. Ares Commercial Real Estate Corp's asset turnover of last year was 0.05152722. ==> 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+0+1+0+0+1+1+1+1
=6

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

Ares Commercial Real Estate Corp 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.

Ares Commercial Real Estate Corp Annual Data

Dec14Dec15Dec16
Question 1 111
Question 2 011
Question 3 001
Question 4 010
Question 5 110
Question 6 011
Question 7 001
Question 8 010
Question 9 001
F-score 266

Ares Commercial Real Estate Corp Quarterly Data

Dec14Mar15Jun15Sep15Dec15Mar16Jun16Sep16Dec16Mar17
Question 1 1111111111
Question 2 0010111110
Question 3 0001001111
Question 4 0010111100
Question 5 1111111000
Question 6 0000111111
Question 7 0010001111
Question 8 0000111101
Question 9 0000000111
F-score 2253668866
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