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Arthur J Gallagher & Co (NYSE:AJG)
Beneish M-Score
-1.96 (As of Today)

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.

Arthur J Gallagher & Co has a M-score of -1.96 signals that the company is a manipulator.

AJG' s 10-Year Beneish M-Score Range
Min: -5.57   Max: 2.9
Current: -1.96

-5.57
2.9

During the past 13 years, the highest Beneish M-Score of Arthur J Gallagher & Co was 2.90. The lowest was -5.57. And the median was -2.55.


Definition

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 Arthur J Gallagher & Co 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 * 1.1662+0.528 * 1.1441+0.404 * 1.054+0.892 * 1.3756+0.115 * 1.0816
-0.172 * SGAI+4.679 * TATA-0.327 * LVGI
-0.172 * 0.8649+4.679 * -0.019-0.327 * 1.019
=-1.96

* All numbers are in millions except for per share data and ratio. All numbers are in their own currency.

This Year (Jun14) TTM:Last Year (Jun13) TTM:
Accounts Receivable was $1,998 Mil.
Revenue was 1179.3 + 915 + 890.2 + 835.8 = $3,820 Mil.
Gross Profit was 378.8 + 277.7 + 261.4 + 276.4 = $1,194 Mil.
Total Current Assets was $4,440 Mil.
Total Assets was $10,019 Mil.
Property, Plant and Equipment(Net PPE) was $194 Mil.
Depreciation, Depletion and Amortization(DDA) was $208 Mil.
Selling, General & Admin. Expense(SGA) was $622 Mil.
Total Current Liabilities was $3,875 Mil.
Long-Term Debt was $2,125 Mil.
Net Income was 109 + 49.3 + 60 + 74.6 = $293 Mil.
Non Operating Income was 0 + 0 + 0 + 0 = $0 Mil.
Cash Flow from Operations was 130.7 + 76.1 + 71.3 + 204.8 = $483 Mil.
Accounts Receivable was $1,245 Mil.
Revenue was 779.5 + 674.1 + 673.2 + 650.4 = $2,777 Mil.
Gross Profit was 287.4 + 232.1 + 225 + 248.8 = $993 Mil.
Total Current Assets was $2,603 Mil.
Total Assets was $5,562 Mil.
Property, Plant and Equipment(Net PPE) was $123 Mil.
Depreciation, Depletion and Amortization(DDA) was $156 Mil.
Selling, General & Admin. Expense(SGA) was $523 Mil.
Total Current Liabilities was $2,344 Mil.
Long-Term Debt was $925 Mil.



1. DSRI = Days Sales in Receivables Index

Measured as the ratio of days’ sales in 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)
=(1997.6 / 3820.3) / (1245.2 / 2777.2)
=0.52289087 / 0.44836526
=1.1662

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)
=(277.7 / 2777.2) / (378.8 / 3820.3)
=0.35766239 / 0.31261943
=1.1441

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 plant, property and equipment to total assets.

AQI=(1 - (CurrentAssets_t + PPE_t) / TotalAssets_t) / (1 - (CurrentAssets_t-1 + PPE_t-1) / TotalAssets_t-1)
=(1 - (4440.3 + 193.7) / 10019.3) / (1 - (2602.6 + 123) / 5562.1)
=0.53749264 / 0.50996926
=1.054

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.

SGI=Sales_t / Sales_t-1
=Revenue_t / Revenue_t-1
=3820.3 / 2777.2
=1.3756

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))
=(156.4 / (156.4 + 123)) / (207.8 / (207.8 + 193.7))
=0.55977094 / 0.51755915
=1.0816

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)
=(622 / 3820.3) / (522.8 / 2777.2)
=0.16281444 / 0.18824716
=0.8649

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)
=((2125 + 3875) / 10019.3) / ((925 + 2343.7) / 5562.1)
=0.59884423 / 0.58767372
=1.019

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
=(292.9 - 0 - 482.9) / 10019.3
=-0.019

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.

Arthur J Gallagher & Co has a M-score of -1.96 signals that the company is likely to be a manipulator.


Related Terms

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


Historical Data

* All numbers are in millions except for per share data and ratio. All numbers are in their own currency.

Arthur J Gallagher & Co Annual Data

Dec04Dec05Dec06Dec07Dec08Dec09Dec10Dec11Dec12Dec13
DSRI 0.89961.0280.9850.86620.63870.7821.00311.19580.90390.932
GMI 0.97481.0380.99111.08080.9650.93212.21851.00661.00171.0922
AQI 1.2761.02081.16171.21941.34921.10780.99520.98021.07631.059
SGI 1.17131.00241.03381.05820.99251.07331.0781.14511.18061.2616
DEPI 0.78610.79730.63710.90720.89580.92440.93380.98810.97671.0842
SGAI 0.82761.21380.9620.9681.09191.01440.30581.03190.97680.9062
LVGI 0.96541.01290.96451.04280.9330.90210.94981.03630.94111.0383
TATA 0.0248-0.02560.0092-0.0274-0.0358-0.0255-0.016-0.031-0.0277-0.0119
M-score -2.19-2.61-2.38-2.57-2.87-2.71-1.71-2.34-2.48-2.28

Arthur J Gallagher & Co Quarterly Data

Mar12Jun12Sep12Dec12Mar13Jun13Sep13Dec13Mar14Jun14
DSRI 1.23030.86680.8730.90390.82080.76650.85310.9320.92351.1662
GMI 0.75150.47790.24111.00170.99591.02391.05851.09221.12771.1441
AQI 0.98291.03111.05921.07631.08671.09041.06381.0590.99791.054
SGI 1.22141.22031.20351.18061.18511.18791.22141.26161.29191.3756
DEPI 0.97840.93940.93290.97670.9641.00751.09431.08421.0841.0816
SGAI 0.91551.67247.11660.660.99070.98060.95820.90620.87610.8649
LVGI 1.00940.93920.91161.24740.95240.96791.01421.03831.08911.019
TATA -0.0182-0.012-0.0157-0.0277-0.0452-0.0224-0.0335-0.0119-0.0134-0.019
M-score -2.28-2.83-3.90-2.53-2.65-2.57-2.50-2.28-2.28-1.96
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