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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 1.97. The lowest was -4.50. And the median was -2.53.
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 * 1.0375||+||0.528 * 0.9331||+||0.404 * 1.0571||+||0.892 * 1.0409||+||0.115 * 1.015|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 1.0003||+||4.679 * -0.0201||-||0.327 * 1.0676|
|This Year (Sep16) TTM:||Last Year (Sep15) TTM:|
|Accounts Receivable was $517 Mil.|
Revenue was 683.9 + 667 + 636.9 + 639.4 = $2,627 Mil.
Gross Profit was 283.3 + 283.7 + 262.7 + 262.6 = $1,092 Mil.
Total Current Assets was $1,508 Mil.
Total Assets was $2,824 Mil.
Property, Plant and Equipment(Net PPE) was $458 Mil.
Depreciation, Depletion and Amortization(DDA) was $64 Mil.
Selling, General & Admin. Expense(SGA) was $639 Mil.
Total Current Liabilities was $682 Mil.
Long-Term Debt was $329 Mil.
Net Income was 83.2 + 87.1 + 73.5 + 79.8 = $324 Mil.
Non Operating Income was 1.9 + 2.3 + 2 + 3.2 = $9 Mil.
Cash Flow from Operations was 108.5 + 128.6 + 26.5 + 107.3 = $371 Mil.
|Accounts Receivable was $479 Mil.
Revenue was 625.1 + 653.5 + 618.5 + 626.8 = $2,524 Mil.
Gross Profit was 255.6 + 262.4 + 229.2 + 231.9 = $979 Mil.
Total Current Assets was $1,414 Mil.
Total Assets was $2,600 Mil.
Property, Plant and Equipment(Net PPE) was $439 Mil.
Depreciation, Depletion and Amortization(DDA) was $63 Mil.
Selling, General & Admin. Expense(SGA) was $614 Mil.
Total Current Liabilities was $624 Mil.
Long-Term Debt was $248 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)|
|=||(517.3 / 2627.2)||/||(479 / 2523.9)|
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)|
|=||(979.1 / 2523.9)||/||(1092.3 / 2627.2)|
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 - (1507.6 + 458.4) / 2824.4)||/||(1 - (1413.8 + 438.8) / 2600.2)|
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))|
|=||(62.7 / (62.7 + 438.8))||/||(64.4 / (64.4 + 458.4))|
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)|
|=||(639.2 / 2627.2)||/||(613.9 / 2523.9)|
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)|
|=||((328.9 + 682.1) / 2824.4)||/||((247.7 + 624.1) / 2600.2)|
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|
|=||(323.6 - 9.4||-||370.9)||/||2824.4|
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.
A.O. Smith Corp has a M-score of -2.54 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