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I’ll use Piotroski’s nine factors aimed at a detecting a trend in financial distress risk to initiate a discussion of SpaceandPeople’s vulnerability to running into serious problems. After all, this share has fallen 92% in five years, which might indicate that Mr Market thinks it is likely to go bust.
The nine factors:
- Did it produce a net income before extraordinary/exceptional items?
No, a loss of £171,000 even before a “non-recurring cost”, so no Piotroski point.
- Cash flow from operations?
No, the cash outflow was £1.4m. No Piotroski point.
- A positive change in return on assets employed in the business from the previous year?
No, because profits were made in 2017, but losses in 2018. No Piotroski point.
- Cash flow is greater than profit?
Cash outflow greater than loss. No Piotroski point.
- Has the firm’s long-term debt reduced relative to its average total assets?
No long-term debt in either 2017 or 2018 (no overdraft of short-term debt at year end – but there was a facility to borrow up to £1.25m – useful during the lean months of the year). I’ll give a Piotroski point for no/low debt.
- Has the firm’s current ratio (current assets divided by current liabilities) improved over the past year?
2017: current assets/current liabilities = £6.028m/£5.074m = 1.19;
2018: £4.396m/£3.874m = 1.13.
No Piotroski point.
- Has the firm avoided raising fresh equity capital (e.g. rights issue or placing) in the last year?
Annual: Yes, so a second point is gained.
- Has gross profit margin improved this year compared with last?
2017: £6.61m/£10m = 66%;
2018: £5.05m/£7.94m = 64%. No Piotroski point is scored.
- Has the ratio of turnover to beginning-of-the-year total assets improved this year compared with last?
2017: £10m/£14.7m = 68%,
2018: £7.94m/£15.4m = 61%. No Piotroski point.
Discussion
An overall score of two is very poor. To look on the bright side we can point to the absence of yearend debt – but there are points in the year when it uses up to £1m of a
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