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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 -0.71. The lowest was -2.96. And the median was -2.49.
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 * 0.8377||+||0.528 * 1.0358||+||0.404 * 1.0272||+||0.892 * 1.2415||+||0.115 * 0.8935|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 1.03||+||4.679 * -0.0119||-||0.327 * 0.9438|
|This Year (Sep15) TTM:||Last Year (Sep14) TTM:|
|Accounts Receivable was $1,736 Mil.|
Revenue was 1454.8 + 1371.4 + 1231.3 + 1245.4 = $5,303 Mil.
Gross Profit was 431 + 449.5 + 346.8 + 347.5 = $1,575 Mil.
Total Current Assets was $4,020 Mil.
Total Assets was $10,510 Mil.
Property, Plant and Equipment(Net PPE) was $201 Mil.
Depreciation, Depletion and Amortization(DDA) was $314 Mil.
Selling, General & Admin. Expense(SGA) was $861 Mil.
Total Current Liabilities was $3,729 Mil.
Long-Term Debt was $2,125 Mil.
Net Income was 133.3 + 139.3 + 21.9 + 51.5 = $346 Mil.
Non Operating Income was 0 + 0 + 0 + 0 = $0 Mil.
Cash Flow from Operations was 244.8 + -31.6 + 113.3 + 144.1 = $471 Mil.
|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 $673 Mil.
Total Current Liabilities was $3,770 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)|
|=||(1735.8 / 5302.9)||/||(1669 / 4271.3)|
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)|
|=||(449.5 / 4271.3)||/||(431 / 5302.9)|
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 - (4020.1 + 200.7) / 10510.4)||/||(1 - (3972.4 + 196.6) / 9988)|
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))|
|=||(235.6 / (235.6 + 196.6))||/||(314 / (314 + 200.7))|
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)|
|=||(860.6 / 5302.9)||/||(673 / 4271.3)|
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 + 3729.2) / 10510.4)||/||((2125 + 3769.8) / 9988)|
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|
|=||(346 - 0||-||470.6)||/||10510.4|
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 -2.44 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