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(I was very sorry to hear today that Marc Haynes, a director of the company and guiding light for the Haynes Motor Museum, has died – a sad loss at such a young age).
Piotroski factors provide some insight into the likelihood of financial distress by examining trends in key accounting metrics over two years.
If all nine are in a positive direction then a very low level of distress is indicated. Any score under five out of nine should make us wary.
The first factor is profits.
Haynes was profitable in the year 31st May 2016 with £2.46m operating profit and £1.15m profit after tax (ignoring exceptional items).
Obviously, these are not impressive numbers, and continue a downward trend. But the market capitalisation is only £19m and a Piotroski point is awarded merely for showing a profit.
Does it produce positive cash flow from operations?
Yes, so it gains a second Piotroski point. Cash flows from operating activities in the year was £7.8m.
But it spent most of that money developing new products (£6.4m). Whether you interpret this expenditure as necessary just to stand still in the market or a wise investment permitting future growth is a difficult judgement to make.
Has the return on capital employed figure improved?
Operating profit divided by net assets in the year to 31st May 2016 was £2.46m/£26.58m = 9.3%.
Because this was an improvement on the year before (£3.05m/£35.34m = 8.6%) a Piotroski point is gained.
Is cash flow greater than profit?……..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
