Hot Features
Premium
Register for Free to get streaming real-time quotes, interactive charts, live options flow, and more.
Premier Farnell’s share price has dropped a lot largely because of concerns over its reduced profits in recent years, managerial upheaval and high debt level.
A share that is on a low cyclically adjusted price earnings ratio is a prime candidate for financial distress, especially when debt is so high. So today I’d like to use Piotroski’s nine metrics to gain some insight into manifestations of financial distress.
The first factor is profits.
Premier Farnell has not had an unprofitable year for at least ten years. In the year to the end of January 2016 it produced profit before tax on continuing business of £41.7m.
A Piotroski point is awarded merely for showing a profit.
Does it produce positive cash flow from operations?
Total cash generated from operations was £99.5m (compared with £78.8m the year before). It gains a second Piotroski point.
Has the return on capital employed figure improved?
For 2016 net income before extraordinary items divided by beginning of year total assets was £57.7m/£594.4m = 9.7%.
For 2015 the numbers are £73m/£537.9m = 13.6%.
The ROCE has declined so PF does not gain a Piotroski point. Even so, note the reasonably OK return of 9.7% in what Mr Market regards as a bad year.
The question is whether the downward trend will continue. This is discussed in the next Newsletter when I look at the management, lowered margins and strategic threats – and make a decision on whether to buy.
Is cash flow greater than profit?
Yes, indicating that profit w………To read the rest of this article, and more like it, subscribe to my premium newsletter Deep Value Shares – click here http://newsletters.advfn.com/deepvalueshares/subscribe-1
