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GuruFocus has detected 5 Warning Signs with Brown-Forman Corp $BF.B.
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Brown-Forman Corp (NYSE:BF.B)
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

Brown-Forman Corp has an F-score of 3. It is a bad or low score, which usually implies poor business operation.

BF.B' s Piotroski F-Score Range Over the Past 10 Years
Min: 3   Max: 8
Current: 3

3
8

During the past 13 years, the highest Piotroski F-Score of Brown-Forman Corp was 8. The lowest was 3. 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 (Apr17) TTM:Last Year (Apr16) TTM:
Net Income was 144 + 197 + 182 + 145 = $668 Mil.
Cash Flow from Operations was 128 + 41 + 276 + 194 = $639 Mil.
Revenue was 661 + 830 + 808 + 695 = $2,994 Mil.
Gross Profit was 453 + 552 + 536 + 480 = $2,021 Mil.
Average Total Assets from the begining of this year (Apr16)
to the end of this year (Apr17) was
(4183 + 4755 + 4720 + 4600 + 4625) / 5 = $4576.6 Mil.
Total Assets at the begining of this year (Apr16) was $4,183 Mil.
Long-Term Debt was $1,689 Mil.
Total Current Assets was $2,351 Mil.
Total Current Liabilities was $970 Mil.
Net Income was 156 + 200 + 190 + 522 = $1,068 Mil.

Revenue was 699 + 854 + 809 + 729 = $3,091 Mil.
Gross Profit was 491 + 586 + 555 + 513 = $2,145 Mil.
Average Total Assets from the begining of last year (Apr15)
to the end of last year (Apr16) was
(4188 + 4334 + 4319 + 4333 + 4183) / 5 = $4271.4 Mil.
Total Assets at the begining of last year (Apr15) was $4,188 Mil.
Long-Term Debt was $1,230 Mil.
Total Current Assets was $2,233 Mil.
Total Current Liabilities was $791 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.

Brown-Forman Corp's current net income (TTM) was 668. ==> 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.

Brown-Forman Corp's current cash flow from operations (TTM) was 639. ==> 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.

Brown-Forman Corp's return on assets of this year was 0.159694. Brown-Forman Corp's return on assets of last year was 0.25501433. ==> 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.

Brown-Forman Corp's current net income (TTM) was 668. Brown-Forman Corp's current cash flow from operations (TTM) was 639. ==> 639 <= 668 ==> 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: Apr17)=Long-Term Debt/Average Total Assets from Apr16 to Apr17
=1689/4576.6
=0.36905126

Gearing (Last Year: Apr16)=Long-Term Debt/Average Total Assets from Apr15 to Apr16
=1230/4271.4
=0.28796179

Brown-Forman Corp's gearing of this year was 0.36905126. Brown-Forman Corp's gearing of last year was 0.28796179. ==> 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: Apr17)=Total Current Assets/Total Current Liabilities
=2351/970
=2.42371134

Current Ratio (Last Year: Apr16)=Total Current Assets/Total Current Liabilities
=2233/791
=2.82300885

Brown-Forman Corp's current ratio of this year was 2.42371134. Brown-Forman Corp's current ratio of last year was 2.82300885. ==> 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.

Brown-Forman Corp's number of shares in issue this year was 386.8. Brown-Forman Corp's number of shares in issue last year was 400.8. ==> 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
=2021/2994
=0.6750167

Gross Margin (Last Year: TTM)=Gross Profit/Revenue
=2145/3091
=0.69395018

Brown-Forman Corp's gross margin of this year was 0.6750167. Brown-Forman Corp's gross margin of last year was 0.69395018. ==> 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 (Apr16)
=2994/4183
=0.71575424

Asset Turnover (Last Year)=Revenue (TTM)/Total Assets at the Beginning of Last Year (Apr15)
=3091/4188
=0.73806113

Brown-Forman Corp's asset turnover of this year was 0.71575424. Brown-Forman Corp's asset turnover of last year was 0.73806113. ==> 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+0+0+0+1+0+0
=3

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

Brown-Forman Corp 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.

Brown-Forman Corp Annual Data

Apr08Apr09Apr10Apr11Apr12Apr13Apr14Apr15Apr16Apr17
Question 1 1111111111
Question 2 1111111111
Question 3 1011011010
Question 4 0110100000
Question 5 1001101100
Question 6 1110101010
Question 7 1111101111
Question 8 0101011100
Question 9 0010101000
F-score 6676748553

Brown-Forman Corp Quarterly Data

Jan15Apr15Jul15Oct15Jan16Apr16Jul16Oct16Jan17Apr17
Question 1 1111111111
Question 2 1111111111
Question 3 1000011110
Question 4 0001000000
Question 5 1100000000
Question 6 0000011100
Question 7 1111111111
Question 8 1110000000
Question 9 0000000000
F-score 6544355543
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