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GuruFocus has detected 9 Warning Signs with Arthur J. Gallagher & Co $AJG.
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Arthur J. Gallagher & Co (NYSE:AJG)
Beneish M-Score
-2.45 (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 -2.45 suggests that the company is not a manipulator.

AJG' s Beneish M-Score Range Over the Past 10 Years
Min: -2.97   Max: -1.22
Current: -2.45

-2.97
-1.22

During the past 13 years, the highest Beneish M-Score of Arthur J. Gallagher & Co was -1.22. The lowest was -2.97. And the median was -2.45.


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 * 1.0369+0.528 * 1.0153+0.404 * 0.9861+0.892 * 1.0375+0.115 * 1.1899
-0.172 * SGAI+4.679 * TATA-0.327 * LVGI
-0.172 * 0.9145+4.679 * -0.0153-0.327 * 1.0251
=-2.45

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.

This Year (Dec16) TTM:Last Year (Dec15) TTM:
Accounts Receivable was $1,982 Mil.
Revenue was 1385 + 1482.3 + 1427.1 + 1300.4 = $5,595 Mil.
Gross Profit was 396.3 + 406 + 471.1 + 373.9 = $1,647 Mil.
Total Current Assets was $4,416 Mil.
Total Assets was $11,490 Mil.
Property, Plant and Equipment(Net PPE) was $378 Mil.
Depreciation, Depletion and Amortization(DDA) was $351 Mil.
Selling, General & Admin. Expense(SGA) was $798 Mil.
Total Current Liabilities was $4,612 Mil.
Long-Term Debt was $2,145 Mil.
Net Income was 95.1 + 122.8 + 150 + 46.5 = $414 Mil.
Non Operating Income was -113.6 + 28.5 + 27.2 + 25.8 = $-32 Mil.
Cash Flow from Operations was 233.7 + 243.4 + 35.6 + 109.4 = $622 Mil.
Accounts Receivable was $1,842 Mil.
Revenue was 1334.9 + 1454.8 + 1371.4 + 1231.3 = $5,392 Mil.
Gross Profit was 384.7 + 431 + 449.5 + 346.8 = $1,612 Mil.
Total Current Assets was $4,214 Mil.
Total Assets was $10,911 Mil.
Property, Plant and Equipment(Net PPE) was $249 Mil.
Depreciation, Depletion and Amortization(DDA) was $334 Mil.
Selling, General & Admin. Expense(SGA) was $841 Mil.
Total Current Liabilities was $4,187 Mil.
Long-Term Debt was $2,072 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)
=(1981.7 / 5594.8) / (1842.1 / 5392.4)
=0.3542039 / 0.34161041
=1.0369

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)
=(1612 / 5392.4) / (1647.3 / 5594.8)
=0.29893925 / 0.29443412
=1.0153

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 - (4416.1 + 377.6) / 11489.6) / (1 - (4213.7 + 249) / 10910.5)
=0.58277921 / 0.590972
=0.9861

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
=5594.8 / 5392.4
=1.0375

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))
=(334.2 / (334.2 + 249)) / (350.8 / (350.8 + 377.6))
=0.57304527 / 0.48160351
=1.1899

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)
=(797.7 / 5594.8) / (840.7 / 5392.4)
=0.14257882 / 0.15590461
=0.9145

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)
=((2144.6 + 4611.7) / 11489.6) / ((2071.7 + 4187.1) / 10910.5)
=0.58803614 / 0.57364924
=1.0251

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
=(414.4 - -32.1 - 622.1) / 11489.6
=-0.0153

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 -2.45 suggests that the company will not 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 local exchange's currency.

Arthur J. Gallagher & Co Annual Data

Dec07Dec08Dec09Dec10Dec11Dec12Dec13Dec14Dec15Dec16
DSRI 0.83010.62560.79841.00311.19580.90390.9320.91840.91761.0369
GMI 0.98090.95122.01111.04311.00661.00171.09221.09891.01231.0153
AQI 1.21941.34921.10780.99520.98021.07631.0591.07580.98540.9861
SGI 1.10421.01341.05121.0781.14511.18061.26161.45511.16551.0375
DEPI 0.86940.93980.88110.93380.98810.97671.08420.92450.99451.1899
SGAI 0.98431.08020.31580.99291.03190.97680.87910.9530.97070.9145
LVGI 1.04280.9330.90210.94981.03630.94111.03830.96180.99561.0251
TATA -0.0319-0.0342-0.0343-0.025-0.0403-0.0357-0.0224-0.0116-0.0234-0.0153
M-score -2.64-2.86-2.07-2.49-2.38-2.52-2.32-2.11-2.51-2.45

Arthur J. Gallagher & Co Quarterly Data

Sep14Dec14Mar15Jun15Sep15Dec15Mar16Jun16Sep16Dec16
DSRI 1.07680.91840.97510.65720.83770.91760.91571.07520.99491.0369
GMI 1.12021.09891.08481.04251.03581.01230.99030.99621.00671.0153
AQI 1.06191.07581.13641.08621.02720.98541.00151.00571.01050.9861
SGI 1.44171.45511.44511.34411.24151.16551.10491.07451.04561.0375
DEPI 0.96670.92450.89680.85390.89350.99450.97770.97840.97731.1899
SGAI 0.85220.9531.00221.03721.02630.97070.95480.94590.93830.9145
LVGI 1.03550.96180.9330.93970.94380.99560.9951.05021.03291.0251
TATA -0.0118-0.0116-0.01870.0007-0.0148-0.0234-0.0212-0.0244-0.0265-0.0153
M-score -1.97-2.11-2.08-2.43-2.45-2.51-2.56-2.47-2.56-2.45
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