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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 Arthur J Gallagher & Co was 3.01. The lowest was -2.93. And the median was -2.51.
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 * 0.6572||+||0.528 * 1.0425||+||0.404 * 1.0862||+||0.892 * 1.3441||+||0.115 * 0.8539|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 1.0224||+||4.679 * 0.0042||-||0.327 * 0.9397|
|This Year (Jun15) TTM:||Last Year (Jun14) TTM:|
|Accounts Receivable was $1,765 Mil.|
Revenue was 1371.4 + 1231.3 + 1245.4 + 1286.8 = $5,135 Mil.
Gross Profit was 449.5 + 346.8 + 347.5 + 396 = $1,540 Mil.
Total Current Assets was $4,261 Mil.
Total Assets was $10,716 Mil.
Property, Plant and Equipment(Net PPE) was $198 Mil.
Depreciation, Depletion and Amortization(DDA) was $305 Mil.
Selling, General & Admin. Expense(SGA) was $837 Mil.
Total Current Liabilities was $3,905 Mil.
Long-Term Debt was $2,125 Mil.
Net Income was 139.3 + 21.9 + 51.5 + 93.6 = $306 Mil.
Non Operating Income was 0 + 0 + 0 + 0 = $0 Mil.
Cash Flow from Operations was -31.6 + 113.3 + 169.1 + 10.4 = $261 Mil.
|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 $609 Mil.
Total Current Liabilities was $3,875 Mil.
Long-Term Debt was $2,125 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)|
|=||(1764.5 / 5134.9)||/||(1997.6 / 3820.3)|
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)|
|=||(346.8 / 3820.3)||/||(449.5 / 5134.9)|
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 - (4261.4 + 198.2) / 10716.1)||/||(1 - (4440.3 + 193.7) / 10019.3)|
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))|
|=||(207.8 / (207.8 + 193.7))||/||(305 / (305 + 198.2))|
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)|
|=||(836.6 / 5134.9)||/||(608.8 / 3820.3)|
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 + 3905.4) / 10716.1)||/||((2125 + 3875) / 10019.3)|
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|
|=||(306.3 - 0||-||261.2)||/||10716.1|
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 -2.41 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
Arthur J Gallagher & Co Annual Data
Arthur J Gallagher & Co Quarterly Data