Checking up on the financial health of Plus500

At a time when the outlook for many firms is uncertain, assessing which ones are on the up (and which ones might be struggling) is more important than ever. 

Good quality stocks with solid balance sheets and improving finances are highly desirable by investors. But with so many factors at play, knowing which ones are more likely to fly than fall can be hard to do. 

What’s needed is a checklist designed to find stocks in the strongest financial shape across the market. And that’s where something called the Piotroski F-Score comes in. 

So, what is the F-Score checklist and how does Plus500 rate against it?

The F-Score was introduced to the world in 2000 by an accounting professor at Stanford University called Joseph Piotroski.

Its genius lies in the analysis of 9 important financial measures that are useful in detecting firms with an improving health trend. The higher the score out of 9, the better.

So how does Plus500 perform against the F-Score?

Encouragingly, Plus500 has a Piotroski F-Score of 9 - signalling that it's towards the top of the range of this quality-focused accounting checklist. Here's why that's significant...

The F-Score works by looking back over a company’s previous financial statements to find the most important signs of strength or weakness. Piotroski used it to find cheaply-priced value stocks that were recovering. But his quality checklist was quickly embraced by analysts and fund managers as a go-to test of any company’s quality.

In search of quality

The nine checks focus on three key areas of financial analysis:

Profitability - the F-Score looks at operating profits, cash flow and earnings quality to see if the business can sustain itself and even pay dividends. 

Capital structure - these checks look for any red flags over the health of the balance sheet, including debt and share issuance.

Operating efficiency - the F-Score looks for positive trends in gross margins and asset turnover.

Check the health of any stock

Overall, Piotroski’s F-Score is a useful checklist for investors looking for an instant assessment of a company’s financial health trend. High F-Scores may point to firms that are strong, stable and profitable, with the potential to deliver predictable returns. 

This assessment of fundamental health won’t always provide protection from trouble, but for those looking for a way of assessing the trends in a company’s financial track record, the F-Score could be a helpful place to start.

What does this mean for potential investors?

Plus500 has an F-Score that suggests it could be a promising investment candidate worthy of further research - but it's only a first step. Higher F-Score stocks can still have weaknesses and may trade at premium prices compared to other stocks. We've identified some areas of concern with Plus500 that you can find out about here.