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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 A O Smith Corp was 2.01. The lowest was -4.50. 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 A O Smith Corp 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 * 1.0456||+||0.528 * 0.9517||+||0.404 * 0.9098||+||0.892 * 1.106||+||0.115 * 1.028|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 1.0213||+||4.679 * -0.0027||-||0.327 * 1.0091|
|This Year (Jun15) TTM:||Last Year (Jun14) TTM:|
|Accounts Receivable was $529 Mil.|
Revenue was 653.5 + 618.5 + 626.8 + 581.6 = $2,480 Mil.
Gross Profit was 263.3 + 229.2 + 231.9 + 215.3 = $940 Mil.
Total Current Assets was $1,400 Mil.
Total Assets was $2,590 Mil.
Property, Plant and Equipment(Net PPE) was $433 Mil.
Depreciation, Depletion and Amortization(DDA) was $62 Mil.
Selling, General & Admin. Expense(SGA) was $611 Mil.
Total Current Liabilities was $579 Mil.
Long-Term Debt was $266 Mil.
Net Income was 71.1 + 58.4 + 53.2 + 50.6 = $233 Mil.
Non Operating Income was 2.7 + 2.7 + 1.7 + 1 = $8 Mil.
Cash Flow from Operations was 61.6 + -3.4 + 100.1 + 74 = $232 Mil.
|Accounts Receivable was $457 Mil.
Revenue was 595.4 + 552.2 + 558.9 + 536.2 = $2,243 Mil.
Gross Profit was 216.2 + 195.9 + 199.9 + 196.6 = $809 Mil.
Total Current Assets was $1,234 Mil.
Total Assets was $2,431 Mil.
Property, Plant and Equipment(Net PPE) was $417 Mil.
Depreciation, Depletion and Amortization(DDA) was $61 Mil.
Selling, General & Admin. Expense(SGA) was $541 Mil.
Total Current Liabilities was $550 Mil.
Long-Term Debt was $236 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)|
|=||(528.5 / 2480.4)||/||(457 / 2242.7)|
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)|
|=||(229.2 / 2242.7)||/||(263.3 / 2480.4)|
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 - (1400 + 433.4) / 2589.8)||/||(1 - (1233.9 + 416.5) / 2430.7)|
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))|
|=||(61.3 / (61.3 + 416.5))||/||(61.8 / (61.8 + 433.4))|
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)|
|=||(611.3 / 2480.4)||/||(541.2 / 2242.7)|
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)|
|=||((266.2 + 579.1) / 2589.8)||/||((236.2 + 550) / 2430.7)|
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|
|=||(233.3 - 8.1||-||232.3)||/||2589.8|
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 Corp has a M-score of -2.42 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 Corp Annual Data
A O Smith Corp Quarterly Data