Aetna Beneish M-Score Calculation
The M-score was created by Professor Messod Beneish. Instead of measuring the bankruptcy risk (Altman Z-Score) or business trend (Piotroski 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 Aetna 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 * 1.7589 | + | 0.528 * 1 | + | 0.404 * 0.8792 | + | 0.892 * 0.9971 | + | 0.115 * 1.0368 |
| - | 0.172 * SGAI | + | 4.679 * TATA | - | 0.327 * LVGI |
| - | 0.172 * 0.9012 | + | 4.679 * 0.046723 | - | 0.327 * 0.9049 |
| = | -1.56 |
* For Operating Data section: All numbers are indicated by the unit behind each term and all currency related amount are in USD.
* For other sections: All numbers are in millions except for per share data, ratio, and percentage. All currency related amount are indicated in the company's associated stock exchange currency.
| This Year (Sep18) TTM: | Last Year (Sep17) TTM: |
Total Receivables was $9,944 Mil.
Revenue was 15484 + 15561 + 15335 + 14853 = $61,233 Mil.
Gross Profit was 15484 + 15561 + 15335 + 14853 = $61,233 Mil.
Total Current Assets was $19,359 Mil.
Total Assets was $57,103 Mil.
Property, Plant and Equipment(Net PPE) was $568 Mil.
Depreciation, Depletion and Amortization(DDA) was $606 Mil.
Selling, General, & Admin. Expense(SGA) was $11,345 Mil.
Total Current Liabilities was $11,511 Mil.
Long-Term Debt & Capital Lease Obligation was $7,782 Mil.
Net Income was 1000 + 1212 + 1209 + 244 = $3,665 Mil.
Non Operating Income was 0 + 0 + 0 + 0 = $0 Mil.
Cash Flow from Operations was -700 + 1044 + 3341 + -2688 = $997 Mil.
|
Total Receivables was $5,670 Mil.
Revenue was 14994 + 15523 + 15165 + 15728 = $61,410 Mil.
Gross Profit was 14994 + 15523 + 15165 + 15728 = $61,410 Mil.
Total Current Assets was $14,312 Mil.
Total Assets was $57,383 Mil.
Property, Plant and Equipment(Net PPE) was $581 Mil.
Depreciation, Depletion and Amortization(DDA) was $669 Mil.
Selling, General, & Admin. Expense(SGA) was $12,625 Mil.
Total Current Liabilities was $13,264 Mil.
Long-Term Debt & Capital Lease Obligation was $8,161 Mil.
|
1. DSRI = Days Sales in Receivables Index
Measured as the ratio of Revenue in Total Receivables in year t to year t-1.
A large increase in DSR could be indicative of revenue inflation.
| DSRI | = | (Receivables_t / Revenue_t) | / | (Receivables_t-1 / Revenue_t-1) |
| = | (9944 / 61233) | / | (5670 / 61410) |
| = | 0.162396 | / | 0.09233 |
| | = | 1.7589 |
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.
| GMI | = | GrossMargin_t-1 | / | GrossMargin_t |
| = | (GrossProfit_t-1 / Revenue_t-1) | / | (GrossProfit_t / Revenue_t) |
| = | (61410 / 61410) | / | (61233 / 61233) |
| = | 1 | / | 1 |
| | = | 1 |
3. AQI = Asset Quality Index
AQI is the ratio of asset quality in year t to year t-1.
Asset quality is measured as the ratio of non-current assets other than Property, Plant and Equipment to Total Assets.
| AQI | = | (1 - (CurrentAssets_t + PPE_t) / TotalAssets_t) | / | (1 - (CurrentAssets_t-1 + PPE_t-1) / TotalAssets_t-1) |
| = | (1 - (19359 + 568) / 57103) | / | (1 - (14312 + 581) / 57383) |
| = | 0.651034 | / | 0.740463 |
| | = | 0.8792 |
4. SGI = Sales Growth Index
Ratio of Revenue 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.
| SGI | = | Sales_t | / | Sales_t-1 |
| = | Revenue_t | / | Revenue_t-1 |
| = | 61233 | / | 61410 |
| | = | 0.9971 |
5. DEPI = Depreciation Index
Measured as the ratio of the rate of Depreciation, Depletion and Amortization 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)) |
| = | (669 / (669 + 581)) | / | (606 / (606 + 568)) |
| = | 0.5352 | / | 0.516184 |
| | = | 1.0368 |
Note: If the Depreciation, Depletion and Amortization data is not available, we assume that the depreciation rate is constant and set the Depreciation Index to 1.
6. SGAI = Sales, General and Administrative expenses Index
The ratio of Selling, General, & Admin. Expense(SGA) to Sales 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) |
| = | (11345 / 61233) | / | (12625 / 61410) |
| = | 0.185276 | / | 0.205585 |
| | = | 0.9012 |
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 in leverage
| LVGI | = | ((LTD_t + CurrentLiabilities_t) / TotalAssets_t) | / | ((LTD_t-1 + CurrentLiabilities_t-1) / TotalAssets_t-1) |
| = | ((7782 + 11511) / 57103) | / | ((8161 + 13264) / 57383) |
| = | 0.337863 | / | 0.373368 |
| | = | 0.9049 |
8. TATA = Total Accruals to Total Assets
Total accruals calculated as the change in working capital accounts other than cash less depreciation.
| TATA | = | (IncomefromContinuingOperations_t | - | CashFlowsfromOperations_t) | / | TotalAssets_t |
| = | (NetIncome_t - NonOperatingIncome_t | - | CashFlowsfromOperations_t) | / | TotalAssets_t |
| = | (3665 - 0 | - | 997) | / | 57103 |
| | = | 0.046723 |
An M-Score of equal or less than -1.78 suggests that the company is unlikely to be a manipulator. An M-Score of greater than -1.78 signals that the company is likely to be a manipulator.
Aetna has a M-score of -1.56 signals that the company is likely to be a manipulator.
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