Graham vs Piotroski vs Altman Scores

While the Piotroski and Altman scores do give some indication of a company's financial health, Graham's framework alone validates that most vital of Investment factors — stock price.

Piotroski Score

The Piotroski Score was devised by Professor of Accounting at Stanford, Joseph D. Piotroski.

For every criteria below met, a stock is awarded one point. The points are then added up to determine the value of the stock, with Nine being the highest and Zero being the lowest.

  1. Positive Net Income
  2. Positive return on assets in the current year
  3. Positive operating cash flow in the current year
  4. Cash flow from operations being greater than net Income
  5. Lower ratio of long term debt in the current period, compared to the previous year
  6. Higher current ratio this year compared to the previous year
  7. No new shares were issued in the last year
  8. A higher gross margin compared to the previous year
  9. A higher asset turnover ratio compared to the previous year

Altman Z-Score

The Altman Z-score was developed by Professor of Finance at NYU Stern, Edward I. Altman, in 1967 to predict whether a company has a high probability of bankruptcy.

The Z-score is based on five financial ratios and is calculated as follows:

Z-Score = 1.2A + 1.4B + 3.3C + 0.6D + 1.0E


  • A = working capital / total assets
  • B = retained earnings / total assets
  • C = earnings before interest and tax / total assets
  • D = market value of equity / total liabilities
  • E = sales / total assets

Graham's Framework

Benjamin Graham's Value Investing framework consists of three sets of rules — seventeen in all — that assess both the company's financial health, as well as its investment merit at its current stock price.

"The margin of safety is always dependent on the price paid. It will be large at one price, small at some higher price, nonexistent at some still higher price."

Benjamin Graham, Chapter 20: “Margin of Safety” as the Central Concept of Investment, The Intelligent Investor.

Note that the Piotroski Score does not consider the stock's price at all; and the fourth factor in the Altman Z-Score — all else being equal — would actually rate an overvalued company higher than an undervalued one.

In contrast, five of the seventeen rules in Graham's framework are concerned solely with setting an upper limit for a stock's price.

Walter Schloss on Price

Schloss — one of Graham's lesser known protégés — gave 16 Factors Needed To Make Money In The Stock Market, the first of which was:

1. Price is the most important factor to use in relation to value.

Warren Buffett on Price

Buffett — Graham's most famous protégé — too has said on numerous occasions that one of the primary characteristics he looks at in a company is its market valuation, i.e., stock price.

"[Graham & Dodd investors] simply focus on two variables: price and value."

"We are quite content to hold any security indefinitely, so long as the prospective return on equity capital of the underlying business is satisfactory, management is competent and honest, and the market does not overvalue the business."

Buffett about Graham

In the 2018 Balance of Power interview for Bloomberg Markets, Buffett says yet again:

"The principles haven't changed at all... It's exactly what Ben Graham wrote in 1949."

Warren Buffett, Bloomberg Markets: Balance of Power (2018).