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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 Sothebys was -1.10. The lowest was -3.52. And the median was -2.38.
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 Sothebys 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 * 2.1203||+||0.528 * 1.0199||+||0.404 * 0.9879||+||0.892 * 0.8522||+||0.115 * 0.9087|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 1.1649||+||4.679 * -0.0669||-||0.327 * 1.1382|
|This Year (Sep16) TTM:||Last Year (Sep15) TTM:|
|Accounts Receivable was $441.5 Mil.|
Revenue was 91.492 + 298.665 + 106.531 + 335.821 = $832.5 Mil.
Gross Profit was 52.301 + 255.888 + 81.86 + 253.681 = $643.7 Mil.
Total Current Assets was $1,189.1 Mil.
Total Assets was $2,357.7 Mil.
Property, Plant and Equipment(Net PPE) was $347.2 Mil.
Depreciation, Depletion and Amortization(DDA) was $21.3 Mil.
Selling, General & Admin. Expense(SGA) was $498.5 Mil.
Total Current Liabilities was $605.3 Mil.
Long-Term Debt was $1,153.5 Mil.
Net Income was -54.47 + 88.964 + -25.884 + -11.153 = $-2.5 Mil.
Non Operating Income was 0.633 + 0.374 + 0.047 + 2.377 = $3.4 Mil.
Cash Flow from Operations was -52.743 + 256.131 + -303.238 + 251.71 = $151.9 Mil.
|Accounts Receivable was $244.3 Mil.
Revenue was 137.992 + 332.006 + 155.675 + 351.224 = $976.9 Mil.
Gross Profit was 81.876 + 278.413 + 128.735 + 281.366 = $770.4 Mil.
Total Current Assets was $1,267.8 Mil.
Total Assets was $2,507.2 Mil.
Property, Plant and Equipment(Net PPE) was $355.3 Mil.
Depreciation, Depletion and Amortization(DDA) was $19.6 Mil.
Selling, General & Admin. Expense(SGA) was $502.1 Mil.
Total Current Liabilities was $447.1 Mil.
Long-Term Debt was $1,196.1 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)|
|=||(441.457 / 832.509)||/||(244.319 / 976.897)|
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)|
|=||(770.39 / 976.897)||/||(643.73 / 832.509)|
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 - (1189.137 + 347.235) / 2357.681)||/||(1 - (1267.846 + 355.286) / 2507.224)|
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))|
|=||(19.649 / (19.649 + 355.286))||/||(21.251 / (21.251 + 347.235))|
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)|
|=||(498.458 / 832.509)||/||(502.106 / 976.897)|
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)|
|=||((1153.485 + 605.344) / 2357.681)||/||((1196.142 + 447.131) / 2507.224)|
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|
|=||(-2.543 - 3.431||-||151.86)||/||2357.681|
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.
Sothebys has a M-score of -1.97 signals that the company is likely to 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
Sothebys Annual Data
Sothebys Quarterly Data