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GuruFocus has detected 6 Warning Signs with Herbalife Ltd $HLF.
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Herbalife Ltd (NYSE:HLF)
Piotroski F-Score
5 (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

Herbalife Ltd has an F-score of 5 indicating the company's financial situation is typical for a stable company.

HLF' s Piotroski F-Score Range Over the Past 10 Years
Min: 4   Max: 8
Current: 5

4
8

During the past 13 years, the highest Piotroski F-Score of Herbalife Ltd was 8. The lowest was 4. And the median was 7.


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 -22.9 + 87.7 + 99.4 + 85.2 = $249 Mil.
Cash Flow from Operations was 226.9 + -118.1 + 117.4 + 175.5 = $402 Mil.
Revenue was 1201.8 + 1122 + 1045 + 1102.1 = $4,471 Mil.
Gross Profit was 965.5 + 912.9 + 848.9 + 897.5 = $3,625 Mil.
Average Total Assets from the begining of this year (Mar16)
to the end of this year (Mar17) was
(2386.3 + 2613.9 + 2532.6 + 2565.4 + 3560.3) / 5 = $2731.7 Mil.
Total Assets at the begining of this year (Mar16) was $2,386 Mil.
Long-Term Debt was $2,199 Mil.
Total Current Assets was $2,410 Mil.
Total Current Liabilities was $941 Mil.
Net Income was 82.8 + 93.6 + 84.5 + 95.8 = $357 Mil.

Revenue was 1162.3 + 1102.9 + 1098.4 + 1119.6 = $4,483 Mil.
Gross Profit was 933 + 896 + 894 + 906.5 = $3,630 Mil.
Average Total Assets from the begining of last year (Mar15)
to the end of last year (Mar16) was
(2388.9 + 2415.1 + 2421.5 + 2477.9 + 2386.3) / 5 = $2417.94 Mil.
Total Assets at the begining of last year (Mar15) was $2,389 Mil.
Long-Term Debt was $993 Mil.
Total Current Assets was $1,474 Mil.
Total Current Liabilities was $1,208 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.

Herbalife Ltd's current net income (TTM) was 249. ==> 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.

Herbalife Ltd's current cash flow from operations (TTM) was 402. ==> 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 (Mar16)
=249.4/2386.3
=0.10451326

ROA (Last Year)=Net Income (TTM)/Total Assets at the Beginning of Last Year (Mar15)
=356.7/2388.9
=0.14931558

Herbalife Ltd's return on assets of this year was 0.10451326. Herbalife Ltd's return on assets of last year was 0.14931558. ==> 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.

Herbalife Ltd's current net income (TTM) was 249. Herbalife Ltd's current cash flow from operations (TTM) was 402. ==> 402 > 249 ==> 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: Mar17)=Long-Term Debt/Average Total Assets from Mar16 to Mar17
=2199.2/2731.7
=0.80506644

Gearing (Last Year: Mar16)=Long-Term Debt/Average Total Assets from Mar15 to Mar16
=992.8/2417.94
=0.41059745

Herbalife Ltd's gearing of this year was 0.80506644. Herbalife Ltd's gearing of last year was 0.41059745. ==> 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
=2409.5/940.6
=2.56166277

Current Ratio (Last Year: Mar16)=Total Current Assets/Total Current Liabilities
=1474.1/1207.9
=1.22038248

Herbalife Ltd's current ratio of this year was 2.56166277. Herbalife Ltd's current ratio of last year was 1.22038248. ==> 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.

Herbalife Ltd's number of shares in issue this year was 86.7. Herbalife Ltd's number of shares in issue last year was 85.6. ==> There is larger number of shares in issue this year. ==> Score 0.

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
=3624.8/4470.9
=0.81075399

Gross Margin (Last Year: TTM)=Gross Profit/Revenue
=3629.5/4483.2
=0.80957798

Herbalife Ltd's gross margin of this year was 0.81075399. Herbalife Ltd's gross margin of last year was 0.80957798. ==> 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)
=4470.9/2386.3
=1.87356996

Asset Turnover (Last Year)=Revenue (TTM)/Total Assets at the Beginning of Last Year (Mar15)
=4483.2/2388.9
=1.87667964

Herbalife Ltd's asset turnover of this year was 1.87356996. Herbalife Ltd's asset turnover of last year was 1.87667964. ==> 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+0+1+0+1+0
=5

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

Herbalife Ltd has an F-score of 5 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.

Herbalife Ltd Annual Data

Dec07Dec08Dec09Dec10Dec11Dec12Dec13Dec14Dec15Dec16
Question 1 1111111111
Question 2 1111111111
Question 3 1101100010
Question 4 1111111111
Question 5 0111000011
Question 6 0001101001
Question 7 1110111100
Question 8 0101100111
Question 9 0101101000
F-score 5858846566

Herbalife Ltd Quarterly Data

Dec14Mar15Jun15Sep15Dec15Mar16Jun16Sep16Dec16Mar17
Question 1 1111111111
Question 2 1111111111
Question 3 0001110000
Question 4 1111111111
Question 5 0111111110
Question 6 0000000011
Question 7 1111001000
Question 8 1111111111
Question 9 0000010000
F-score 5667676565
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