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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.
A.O. Smith Corporation has a M-score of -2.68 suggests that the company is not a manipulator.
During the past 13 years, the highest Beneish M-Score of A.O. Smith Corporation was -1.33. The lowest was -3.04. 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 A.O. Smith Corporation 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 * 0.9709||+||0.528 * 0.9358||+||0.404 * 0.9251||+||0.892 * 1.1106||+||0.115 * 1.0304|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 1.0483||+||4.679 * -0.0429||-||0.327 * 1.0013|
|This Year (Dec13) TTM:||Last Year (Dec12) TTM:|
|Accounts Receivable was $459 Mil.|
Revenue was 558.9 + 536.2 + 549.1 + 509.6 = $2,154 Mil.
Gross Profit was 199.9 + 196.6 + 198 + 179.3 = $774 Mil.
Total Current Assets was $1,206 Mil.
Total Assets was $2,392 Mil.
Property, Plant and Equipment(Net PPE) was $391 Mil.
Depreciation, Depletion and Amortization(DDA) was $60 Mil.
Selling, General & Admin. Expense(SGA) was $525 Mil.
Total Current Liabilities was $591 Mil.
Long-Term Debt was $178 Mil.
Net Income was 42.4 + 46.2 + 42.1 + 39 = $170 Mil.
Non Operating Income was -10 + 1.1 + 0.7 + 1 = $-7 Mil.
Cash Flow from Operations was 91.6 + 83 + 69.2 + 35.8 = $280 Mil.
|Accounts Receivable was $425 Mil.
Revenue was 524.3 + 462.2 + 484.2 + 468.6 = $1,939 Mil.
Gross Profit was 185.6 + 156.8 + 160.5 + 149.1 = $652 Mil.
Total Current Assets was $1,115 Mil.
Total Assets was $2,279 Mil.
Property, Plant and Equipment(Net PPE) was $346 Mil.
Depreciation, Depletion and Amortization(DDA) was $55 Mil.
Selling, General & Admin. Expense(SGA) was $451 Mil.
Total Current Liabilities was $506 Mil.
Long-Term Debt was $225 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)|
|=||(458.7 / 2153.8)||/||(425.4 / 1939.3)|
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)|
|=||(196.6 / 1939.3)||/||(199.9 / 2153.8)|
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 - (1205.6 + 391.3) / 2391.5)||/||(1 - (1114.6 + 345.7) / 2278.8)|
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))|
|=||(54.6 / (54.6 + 345.7))||/||(59.7 / (59.7 + 391.3))|
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)|
|=||(524.5 / 2153.8)||/||(450.5 / 1939.3)|
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)|
|=||((177.7 + 590.9) / 2391.5)||/||((225.1 + 506.3) / 2278.8)|
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|
|=||(169.7 - -7.2||-||279.6)||/||2391.5|
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.
A.O. Smith Corporation has a M-score of -2.68 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
A.O. Smith Corporation Annual Data
A.O. Smith Corporation Quarterly Data