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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 Baker Hughes Inc was -1.52. The lowest was -8.71. 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 Baker Hughes Inc 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 * 1.1193||+||0.528 * -6.2846||+||0.404 * 0.872||+||0.892 * 0.6251||+||0.115 * 0.963|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 1.3276||+||4.679 * -0.3535||-||0.327 * 0.9851|
|This Year (Dec16) TTM:||Last Year (Dec15) TTM:|
|Accounts Receivable was $2,251 Mil.|
Revenue was 2410 + 2353 + 2408 + 2670 = $9,841 Mil.
Gross Profit was 266 + 294 + -704 + 12 = $-132 Mil.
Total Current Assets was $9,167 Mil.
Total Assets was $19,034 Mil.
Property, Plant and Equipment(Net PPE) was $4,271 Mil.
Depreciation, Depletion and Amortization(DDA) was $1,166 Mil.
Selling, General & Admin. Expense(SGA) was $815 Mil.
Total Current Liabilities was $2,304 Mil.
Long-Term Debt was $2,886 Mil.
Net Income was -417 + -429 + -911 + -981 = $-2,738 Mil.
Non Operating Income was -97 + 0 + -142 + 0 = $-239 Mil.
Cash Flow from Operations was 632 + 119 + 3577 + -99 = $4,229 Mil.
|Accounts Receivable was $3,217 Mil.
Revenue was 3394 + 3786 + 3968 + 4594 = $15,742 Mil.
Gross Profit was 280 + 411 + 384 + 252 = $1,327 Mil.
Total Current Assets was $9,268 Mil.
Total Assets was $24,080 Mil.
Property, Plant and Equipment(Net PPE) was $6,693 Mil.
Depreciation, Depletion and Amortization(DDA) was $1,742 Mil.
Selling, General & Admin. Expense(SGA) was $982 Mil.
Total Current Liabilities was $2,775 Mil.
Long-Term Debt was $3,890 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)|
|=||(2251 / 9841)||/||(3217 / 15742)|
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)|
|=||(1327 / 15742)||/||(-132 / 9841)|
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 - (9167 + 4271) / 19034)||/||(1 - (9268 + 6693) / 24080)|
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))|
|=||(1742 / (1742 + 6693))||/||(1166 / (1166 + 4271))|
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)|
|=||(815 / 9841)||/||(982 / 15742)|
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)|
|=||((2886 + 2304) / 19034)||/||((3890 + 2775) / 24080)|
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|
|=||(-2738 - -239||-||4229)||/||19034|
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.
Baker Hughes Inc has a M-score of -8.31 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
Baker Hughes Inc Annual Data
Baker Hughes Inc Quarterly Data