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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 Avery Dennison Corp was -2.28. The lowest was -3.67. And the median was -2.57.
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 Avery Dennison 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 * 1.0682||+||0.528 * 0.9457||+||0.404 * 1.0203||+||0.892 * 0.9426||+||0.115 * 1.0302|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 1.0162||+||4.679 * -0.0319||-||0.327 * 1.0081|
|This Year (Dec15) TTM:||Last Year (Dec14) TTM:|
|Accounts Receivable was $965 Mil.|
Revenue was 1454.8 + 1468.1 + 1516 + 1528 = $5,967 Mil.
Gross Profit was 392.3 + 405.9 + 417.6 + 430 = $1,646 Mil.
Total Current Assets was $1,775 Mil.
Total Assets was $4,134 Mil.
Property, Plant and Equipment(Net PPE) was $848 Mil.
Depreciation, Depletion and Amortization(DDA) was $188 Mil.
Selling, General & Admin. Expense(SGA) was $1,109 Mil.
Total Current Liabilities was $1,459 Mil.
Long-Term Debt was $964 Mil.
Net Income was 57 + 81.7 + 63.3 + 71.6 = $274 Mil.
Non Operating Income was -19.3 + -7 + -27.7 + -14.3 = $-68 Mil.
Cash Flow from Operations was 183.4 + 119.4 + 162.6 + 8.3 = $474 Mil.
|Accounts Receivable was $958 Mil.
Revenue was 1604.8 + 1559.6 + 1615.8 + 1550.1 = $6,330 Mil.
Gross Profit was 415.1 + 400.7 + 428.2 + 407.2 = $1,651 Mil.
Total Current Assets was $1,921 Mil.
Total Assets was $4,357 Mil.
Property, Plant and Equipment(Net PPE) was $875 Mil.
Depreciation, Depletion and Amortization(DDA) was $202 Mil.
Selling, General & Admin. Expense(SGA) was $1,158 Mil.
Total Current Liabilities was $1,593 Mil.
Long-Term Debt was $940 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)|
|=||(964.7 / 5966.9)||/||(958.1 / 6330.3)|
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)|
|=||(405.9 / 6330.3)||/||(392.3 / 5966.9)|
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 - (1775.4 + 847.9) / 4133.7)||/||(1 - (1921.3 + 875.3) / 4356.9)|
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))|
|=||(201.6 / (201.6 + 875.3))||/||(188.3 / (188.3 + 847.9))|
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)|
|=||(1109.1 / 5966.9)||/||(1157.9 / 6330.3)|
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)|
|=||((963.6 + 1459.1) / 4133.7)||/||((940.1 + 1593) / 4356.9)|
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|
|=||(273.6 - -68.3||-||473.7)||/||4133.7|
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.
Avery Dennison Corp has a M-score of -2.64 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
Avery Dennison Corp Annual Data
Avery Dennison Corp Quarterly Data