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The zones of discrimination for M-Score is as such:
An M-Score of less than -2.22 suggests that the company is not an accounting manipulator.
An M-Score of greater than -2.22 signals that the company is likely an accounting manipulator.
During the past 13 years, the highest Beneish M-Score of Arch Coal Inc was -2.03. The lowest was -3.52. And the median was -2.76.
The M-score was created by Professor Messod Beneish. Instead of measuring the bankruptcy risk (Z-Score) or business trend (F-Score), M-score can be used to detect the risk of earnings manipulation. This is the original research paper on M-score.
The M-Score Variables:
The M-score of Arch Coal Inc for today is based on a combination of the following eight different indices:
|M||=||-4.84||+||0.92 * DSRI||+||0.528 * GMI||+||0.404 * AQI||+||0.892 * SGI||+||0.115 * DEPI|
|=||-4.84||+||0.92 * 1.0962||+||0.528 * 0.9226||+||0.404 * 0.9757||+||0.892 * 0.9744||+||0.115 * 1.023|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 0.8784||+||4.679 * -0.0623||-||0.327 * 1.0735|
|This Year (Dec14) TTM:||Last Year (Dec13) TTM:|
|Accounts Receivable was $212 Mil.|
Revenue was 745.192 + 742.18 + 713.776 + 735.971 = $2,937 Mil.
Gross Profit was 134.546 + 95.084 + 91.639 + 49.657 = $371 Mil.
Total Current Assets was $1,543 Mil.
Total Assets was $8,430 Mil.
Property, Plant and Equipment(Net PPE) was $6,453 Mil.
Depreciation, Depletion and Amortization(DDA) was $419 Mil.
Selling, General & Admin. Expense(SGA) was $114 Mil.
Total Current Liabilities was $519 Mil.
Long-Term Debt was $5,123 Mil.
Net Income was -240.136 + -97.218 + -96.86 + -124.139 = $-558 Mil.
Non Operating Income was 0 + 0 + 0 + 0 = $0 Mil.
Cash Flow from Operations was -35.572 + 80.336 + -38.071 + -40.275 = $-34 Mil.
|Accounts Receivable was $198 Mil.
Revenue was 719.386 + 791.269 + 766.332 + 737.37 = $3,014 Mil.
Gross Profit was 50.903 + 102.557 + 110.134 + 87.627 = $351 Mil.
Total Current Assets was $1,782 Mil.
Total Assets was $8,990 Mil.
Property, Plant and Equipment(Net PPE) was $6,734 Mil.
Depreciation, Depletion and Amortization(DDA) was $448 Mil.
Selling, General & Admin. Expense(SGA) was $133 Mil.
Total Current Liabilities was $488 Mil.
Long-Term Debt was $5,118 Mil.
1. DSRI = Days Sales in Receivables Index
A large increase in DSR could be indicative of revenue inflation.
|DSRI||=||(Receivables_t / Revenue_t)||/||(Receivables_t-1 / Revenue_t-1)|
|=||(211.506 / 2937.119)||/||(198.02 / 3014.357)|
2. GMI = Gross Margin Index
Measured as the ratio of gross margin in year t-1 to gross margin in year t.
Gross margin has deteriorated when this index is above 1. A firm with poorer prospects is more likely to manipulate earnings.
|=||(GrossProfit_t-1 / Revenue_t-1)||/||(GrossProfit_t / Revenue_t)|
|=||(95.084 / 3014.357)||/||(134.546 / 2937.119)|
3. AQI = Asset Quality Index
AQI is the ratio of asset quality in year t to year t-1.
|AQI||=||(1 - (CurrentAssets_t + PPE_t) / TotalAssets_t)||/||(1 - (CurrentAssets_t-1 + PPE_t-1) / TotalAssets_t-1)|
|=||(1 - (1542.751 + 6453.458) / 8429.723)||/||(1 - (1782.071 + 6734.286) / 8990.193)|
4. SGI = Sales Growth Index
Ratio of sales in year t to sales in year t-1.
Sales growth is not itself a measure of manipulation. However, growth companies are likely to find themselves under pressure to manipulate in order to keep up appearances.
5. DEPI = Depreciation Index
Measured as the ratio of the rate of depreciation in year t-1 to the corresponding rate in year t.
DEPI greater than 1 indicates that assets are being depreciated at a slower rate. This suggests that the firm might be revising useful asset life assumptions upwards, or adopting a new method that is income friendly.
|DEPI||=||(Depreciation_t-1 / (Depreciaton_t-1 + PPE_t-1))||/||(Depreciation_t / (Depreciaton_t + PPE_t))|
|=||(447.704 / (447.704 + 6734.286))||/||(418.748 / (418.748 + 6453.458))|
6. SGAI = Sales, General and Administrative expenses Index
The ratio of SGA expenses in year t relative to year t-1.
SGA expenses index > 1 means that the company is becoming less efficient in generate sales.
|SGAI||=||(SGA_t / Sales_t)||/||(SGA_t-1 /Sales_t-1)|
|=||(114.223 / 2937.119)||/||(133.448 / 3014.357)|
7. LVGI = Leverage Index
The ratio of total debt to total assets in year t relative to yeat t-1.
An LVGI > 1 indicates an increase$sgai= in leverage
|LVGI||=||((LTD_t + CurrentLiabilities_t) / TotalAssets_t)||/||((LTD_t-1 + CurrentLiabilities_t-1) / TotalAssets_t-1)|
|=||((5123.485 + 519.394) / 8429.723)||/||((5118.002 + 488.222) / 8990.193)|
8. TATA = Total Accruals to Total Assets
Total accruals calculated as the change in working capital accounts other than cash less depreciation.
|=||(NetIncome_t - NonOperatingIncome_t||-||CashFlowsfromOperations_t)||/||TotalAssets_t|
|=||(-558.353 - 0||-||-33.582)||/||8429.723|
An M-Score of less than -2.22 suggests that the company will not be a manipulator. An M-Score of greater than -2.22 signals that the company is likely to be a manipulator.
Arch Coal Inc has a M-score of -2.76 suggests that the company will not be a manipulator.
Altman Z-Score, Piotroski F-Score, Accounts Receivable, Revenue, Gross Profit, Total Current Assets, Total Assets, Property, Plant and Equipment, Depreciation, Depletion and Amortization, Selling, General & Admin. Expense, Total Current Liabilities, Long-Term Debt, Net Income, Non Operating Income, Cash Flow from Operations
Arch Coal Inc Annual Data
Arch Coal Inc Quarterly Data