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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 -2.51.
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 * 0.9691||+||0.528 * 0.9007||+||0.404 * 0.9876||+||0.892 * 1.0547||+||0.115 * 0.9979|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 1.0069||+||4.679 * -0.0315||-||0.327 * 0.9962|
|This Year (Mar16) TTM:||Last Year (Mar15) TTM:|
|Accounts Receivable was $507 Mil.|
Revenue was 636.9 + 639.4 + 625.1 + 653.5 = $2,555 Mil.
Gross Profit was 262.7 + 262.6 + 256.7 + 263.3 = $1,045 Mil.
Total Current Assets was $1,426 Mil.
Total Assets was $2,651 Mil.
Property, Plant and Equipment(Net PPE) was $451 Mil.
Depreciation, Depletion and Amortization(DDA) was $64 Mil.
Selling, General & Admin. Expense(SGA) was $625 Mil.
Total Current Liabilities was $602 Mil.
Long-Term Debt was $274 Mil.
Net Income was 73.5 + 79.8 + 73.6 + 71.1 = $298 Mil.
Non Operating Income was 2 + 3.2 + 2.2 + 2.7 = $10 Mil.
Cash Flow from Operations was 26.5 + 113.1 + 173.1 + 58.6 = $371 Mil.
|Accounts Receivable was $496 Mil.
Revenue was 618.5 + 626.8 + 581.6 + 595.4 = $2,422 Mil.
Gross Profit was 229.2 + 231.9 + 215.3 + 216.2 = $893 Mil.
Total Current Assets was $1,376 Mil.
Total Assets was $2,565 Mil.
Property, Plant and Equipment(Net PPE) was $430 Mil.
Depreciation, Depletion and Amortization(DDA) was $61 Mil.
Selling, General & Admin. Expense(SGA) was $588 Mil.
Total Current Liabilities was $596 Mil.
Long-Term Debt was $255 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)|
|=||(506.9 / 2554.9)||/||(495.9 / 2422.3)|
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)|
|=||(892.6 / 2422.3)||/||(1045.3 / 2554.9)|
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 - (1425.9 + 450.6) / 2650.6)||/||(1 - (1376.3 + 430.4) / 2565.3)|
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))|
|=||(60.6 / (60.6 + 430.4))||/||(63.6 / (63.6 + 450.6))|
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)|
|=||(624.9 / 2554.9)||/||(588.4 / 2422.3)|
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)|
|=||((274.1 + 602) / 2650.6)||/||((255.3 + 595.8) / 2565.3)|
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|
|=||(298 - 10.1||-||371.3)||/||2650.6|
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.
A.O. Smith Corp has a M-score of -2.66 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