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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.
Arthur J Gallagher & Co has a M-score of -1.92 signals that the company is a manipulator.
During the past 13 years, the highest Beneish M-Score of Arthur J Gallagher & Co was 3.01. The lowest was -2.93. And the median was -2.53.
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 * 1.0768||+||0.528 * 1.1202||+||0.404 * 1.0619||+||0.892 * 1.4417||+||0.115 * 0.9667|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 0.9008||+||4.679 * 0.0007||-||0.327 * 1.0355|
|This Year (Sep14) TTM:||Last Year (Sep13) TTM:|
|Accounts Receivable was $1,669 Mil.|
Revenue was 1286.8 + 1179.3 + 915 + 890.2 = $4,271 Mil.
Gross Profit was 396 + 378.8 + 277.7 + 261.4 = $1,314 Mil.
Total Current Assets was $3,972 Mil.
Total Assets was $9,988 Mil.
Property, Plant and Equipment(Net PPE) was $197 Mil.
Depreciation, Depletion and Amortization(DDA) was $236 Mil.
Selling, General & Admin. Expense(SGA) was $694 Mil.
Total Current Liabilities was $3,770 Mil.
Long-Term Debt was $2,125 Mil.
Net Income was 93.6 + 109 + 49.3 + 60 = $312 Mil.
Non Operating Income was 0 + 0 + 0 + 0 = $0 Mil.
Cash Flow from Operations was 26.4 + 130.7 + 76.1 + 71.3 = $305 Mil.
|Accounts Receivable was $1,075 Mil.
Revenue was 835.8 + 779.5 + 674.1 + 673.2 = $2,963 Mil.
Gross Profit was 276.4 + 287.4 + 232.1 + 225 = $1,021 Mil.
Total Current Assets was $2,547 Mil.
Total Assets was $5,970 Mil.
Property, Plant and Equipment(Net PPE) was $148 Mil.
Depreciation, Depletion and Amortization(DDA) was $165 Mil.
Selling, General & Admin. Expense(SGA) was $534 Mil.
Total Current Liabilities was $2,578 Mil.
Long-Term Debt was $825 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)|
|=||(1669 / 4271.3)||/||(1075.1 / 2962.6)|
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)|
|=||(378.8 / 2962.6)||/||(396 / 4271.3)|
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 - (3972.4 + 196.6) / 9988)||/||(1 - (2546.7 + 148.1) / 5970.2)|
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))|
|=||(165 / (165 + 148.1))||/||(235.6 / (235.6 + 196.6))|
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)|
|=||(693.9 / 4271.3)||/||(534.3 / 2962.6)|
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 + 3769.8) / 9988)||/||((825 + 2577.9) / 5970.2)|
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|
|=||(311.9 - 0||-||304.5)||/||9988|
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 -1.92 signals that the company is likely to 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
Arthur J Gallagher & Co Annual Data
Arthur J Gallagher & Co Quarterly Data