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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 -1.18. The lowest was -2.93. And the median was -2.45.
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 * 0.7799||+||0.528 * 1.0989||+||0.404 * 1.0758||+||0.892 * 1.4551||+||0.115 * 0.9245|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 0.9545||+||4.679 * -0.0099||-||0.327 * 0.9618|
|This Year (Dec14) TTM:||Last Year (Dec13) TTM:|
|Accounts Receivable was $1,463 Mil.|
Revenue was 1245.4 + 1286.8 + 1179.3 + 915 = $4,627 Mil.
Gross Profit was 347.5 + 396 + 378.8 + 277.7 = $1,400 Mil.
Total Current Assets was $3,811 Mil.
Total Assets was $10,010 Mil.
Property, Plant and Equipment(Net PPE) was $195 Mil.
Depreciation, Depletion and Amortization(DDA) was $259 Mil.
Selling, General & Admin. Expense(SGA) was $767 Mil.
Total Current Liabilities was $3,643 Mil.
Long-Term Debt was $2,125 Mil.
Net Income was 51.5 + 93.6 + 109 + 49.3 = $303 Mil.
Non Operating Income was 0 + 0 + 0 + 0 = $0 Mil.
Cash Flow from Operations was 169.1 + 26.4 + 130.7 + 76.1 = $402 Mil.
|Accounts Receivable was $1,289 Mil.
Revenue was 890.2 + 835.8 + 779.5 + 674.1 = $3,180 Mil.
Gross Profit was 261.4 + 276.4 + 287.4 + 232.1 = $1,057 Mil.
Total Current Assets was $2,876 Mil.
Total Assets was $6,861 Mil.
Property, Plant and Equipment(Net PPE) was $160 Mil.
Depreciation, Depletion and Amortization(DDA) was $179 Mil.
Selling, General & Admin. Expense(SGA) was $552 Mil.
Total Current Liabilities was $3,285 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)|
|=||(1462.5 / 4626.5)||/||(1288.8 / 3179.6)|
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)|
|=||(396 / 3179.6)||/||(347.5 / 4626.5)|
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 - (3811.2 + 195.4) / 10010)||/||(1 - (2875.6 + 160.4) / 6860.5)|
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))|
|=||(178.6 / (178.6 + 160.4))||/||(258.9 / (258.9 + 195.4))|
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)|
|=||(767.2 / 4626.5)||/||(552.4 / 3179.6)|
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 + 3642.7) / 10010)||/||((825 + 3284.8) / 6860.5)|
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|
|=||(303.4 - 0||-||402.3)||/||10010|
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 -2.23 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