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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 -1.22. The lowest was -2.97. And the median was -2.48.
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 * -0.0276||-||0.327 * 1.0251|
|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 28.3 + 28.5 + 27.2 + 25.8 = $110 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
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)|
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)|
|=||(1612 / 5392.4)||/||(1647.3 / 5594.8)|
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 - (4416.1 + 377.6) / 11489.6)||/||(1 - (4213.7 + 249) / 10910.5)|
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))|
|=||(334.2 / (334.2 + 249))||/||(350.8 / (350.8 + 377.6))|
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)|
|=||(797.7 / 5594.8)||/||(840.7 / 5392.4)|
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)|
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|
|=||(414.4 - 109.8||-||622.1)||/||11489.6|
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 -2.51 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