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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 -1.27. The lowest was -5.03. 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 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 * 1.065||+||0.528 * 2.3878||+||0.404 * 1.2015||+||0.892 * 0.5902||+||0.115 * 0.8596|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 1.453||+||4.679 * -0.1657||-||0.327 * 0.9754|
|This Year (Mar16) TTM:||Last Year (Mar15) TTM:|
|Accounts Receivable was $2,800 Mil.|
Revenue was 2670 + 3394 + 3786 + 3968 = $13,818 Mil.
Gross Profit was 12 + 252 + 383 + 353 = $1,000 Mil.
Total Current Assets was $8,771 Mil.
Total Assets was $22,936 Mil.
Property, Plant and Equipment(Net PPE) was $6,323 Mil.
Depreciation, Depletion and Amortization(DDA) was $1,636 Mil.
Selling, General & Admin. Expense(SGA) was $1,065 Mil.
Total Current Liabilities was $2,462 Mil.
Long-Term Debt was $3,885 Mil.
Net Income was -981 + -1031 + -159 + -188 = $-2,359 Mil.
Non Operating Income was 0 + 0 + 0 + 0 = $0 Mil.
Cash Flow from Operations was -99 + 531 + 428 + 581 = $1,441 Mil.
|Accounts Receivable was $4,455 Mil.
Revenue was 4594 + 6635 + 6250 + 5935 = $23,414 Mil.
Gross Profit was 252 + 1461 + 1143 + 1190 = $4,046 Mil.
Total Current Assets was $10,705 Mil.
Total Assets was $26,926 Mil.
Property, Plant and Equipment(Net PPE) was $8,559 Mil.
Depreciation, Depletion and Amortization(DDA) was $1,837 Mil.
Selling, General & Admin. Expense(SGA) was $1,242 Mil.
Total Current Liabilities was $3,733 Mil.
Long-Term Debt was $3,906 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)|
|=||(2800 / 13818)||/||(4455 / 23414)|
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)|
|=||(4046 / 23414)||/||(1000 / 13818)|
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 - (8771 + 6323) / 22936)||/||(1 - (10705 + 8559) / 26926)|
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))|
|=||(1837 / (1837 + 8559))||/||(1636 / (1636 + 6323))|
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)|
|=||(1065 / 13818)||/||(1242 / 23414)|
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)|
|=||((3885 + 2462) / 22936)||/||((3906 + 3733) / 26926)|
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|
|=||(-2359 - 0||-||1441)||/||22936|
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 -2.83 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