Piotroski Score Explained: Value Investing for Australians in 2025

In a landscape where value investing is making a comeback, the Piotroski Score has emerged as a must-know metric for Australian investors. With volatility and policy changes shaping 2025’s markets, understanding how to separate the wheat from the chaff in ASX-listed companies can give your portfolio a much-needed edge.

What Is the Piotroski Score?

Devised by Stanford accounting professor Joseph Piotroski in 2000, the Piotroski Score is a nine-point system that measures a company’s financial strength. It uses fundamental accounting signals from a company’s financial statements—mainly from the balance sheet, income statement, and cash flow statement—to help investors spot robust value stocks (especially those that look cheap on traditional metrics).

Here’s a quick overview of the nine criteria:

• Profitability: Positive net income, positive operating cash flow, and improving return on assets (ROA).

• Leverage, Liquidity, and Source of Funds: Lower leverage (declining debt), higher current ratio, and no new shares issued.

• Operating Efficiency: Improving gross margin and higher asset turnover.

Each criterion scores 1 point if met, 0 if not. A score of 8–9 signals a financially healthy company, while 0–2 suggests caution.

Why Australian Investors Are Paying Attention in 2025

With the ASX seeing a renewed appetite for value stocks—partly due to the RBA’s interest rate policies and a global shift away from speculative tech—metrics like the Piotroski Score are more relevant than ever. Recent regulatory changes (including stricter reporting requirements and sustainability disclosures for listed companies) have increased transparency, making the score’s signals more reliable for retail investors.

For example, in 2025, the Australian government’s push for climate-related financial disclosures means that cash flows and asset values are under closer scrutiny. This makes the Piotroski Score’s focus on real, cash-driven performance especially useful.

• Case Study: An ASX-listed mining company improved its Piotroski Score from 4 to 7 in the past year after reducing debt and increasing cash flows—correlating with a 20% rise in its share price.

• Trend: Australian ETFs tracking ‘quality’ factors now often incorporate Piotroski screening to filter out financially weak companies.

How to Use the Piotroski Score on the ASX

Using the Piotroski Score doesn’t require advanced maths or expensive software—many financial platforms now calculate it for you. Here’s how savvy investors are putting it to work:

• Shortlisting Value Stocks: Start with companies trading at low price-to-book ratios, then filter for those with a Piotroski Score of 7 or higher.

• Portfolio Health Check: Review your holdings and flag any with scores below 3 for deeper analysis or potential divestment.

• DIY Analysis: For those who love digging into annual reports, you can calculate the score yourself using audited ASX filings—especially useful for small caps where analyst coverage is thin.

Keep in mind that the Piotroski Score isn’t a magic bullet; it works best as part of a broader toolkit, alongside qualitative research and sector-specific insights.

Limitations and 2025 Considerations

While powerful, the Piotroski Score has its limits. It’s backward-looking (relying on historical financials) and may miss companies undergoing genuine transformation or those in high-growth sectors where traditional profitability isn’t yet visible. In 2025, with the ASX’s growing tech and renewables sector, investors should supplement the score with forward-looking indicators and ESG metrics.

Nonetheless, as a first-pass filter—especially in mature sectors like financials, resources, and industrials—it remains a reliable way to avoid balance sheet blow-ups and focus on companies with real, sustainable earnings power.