Piotroski Score

I always enjoy finding out more about Australian value investors and was recently reading the 2011 Platinum Asset Management (PTM) annual report. Those who don't usually read annual reports may find the PTM annual reports a pleasant surprise as at the end of each annual report are articles that value investors would appreciate. In the 2011 report there was an interesting article by Dylan Grice of Societe Generale titled Cheap Stocks for An Expensive World. In it he referenced the work of Joseph D. Piotroski who is a Stanford University Graduate School of Business professor who specializes in accounting and financial reporting issues.

Basically the Piotroski score is a ranking system based on nine criteria that calculates varios ratios from historical account information. The values range from 0 (lowest score) to 9 (highest score) with higher scores suggesting firms in better long-term financial health. First published in 2000, Piotroski’s scoring system (F_Score) has been found by a variety of researchers including himself to identify stocks that consistently outperform market indexes.
The nine criteria are:

1. Net Income: Bottom line. Score 1 if last year net income is positive.
2. Operating Cash Flow: A better earnings gauge. Score 1 if last year cash flow is positive.
3. Return On Assets: Measures Profitability. Score 1 if last year ROA exceeds prior-year ROA.
4. Quality of Earnings: Warns of Accounting Tricks. Score 1 if last year operating cash flow exceeds net income.
5. Long-Term Debt vs. Assets: Is Debt decreasing? Score 1 if the ratio of long-term debt to assets is down from the year-ago value. (If LTD is zero but assets are increasing, score 1 anyway.)
6. Current Ratio:  Measures increasing working capital. Score 1 if CR has increased from the prior year.
7. Shares Outstanding: A Measure of potential dilution. Score 1 if the number of shares outstanding is no greater than the year-ago figure.
8. Gross Margin: A measure of improving competitive position. Score 1 if full-year GM exceeds the prior-year GM.
9. Asset Turnover: Measures productivity. Score 1 if the percentage increase in sales exceeds the percentage increase in total assets.

A company's F_Score is determined by summing up the results of each test (one point if a stock passes each test and zero if it doesn’t). Therefore a company's score can range from 0 (worst score) to a maximum score is 9 (best score). Those interested in reading the award winning paper can follow this link or google to find it:

I have recently finished Roger Montgomery's book on value investing and was considering including it in my online valuation spreadsheet based on his book. Those interest can follow the link here: https://docs.google.com/spreadsheet/ccc?key=0AoGU3QVjAi2tdF9zcTUxbjBISWx3QzE5eDEzeW1oSUE

I'm interested to know your opinion of whether Piotroski's score has relevance for the current Australian ASX market?