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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 -3.17. And the median was -2.44.
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 * 0.9345||+||0.528 * 1.0692||+||0.404 * 1.0609||+||0.892 * 1.025||+||0.115 * 1.026|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 1.0397||+||4.679 * -0.0336||-||0.327 * 1.0366|
|This Year (Dec15) TTM:||Last Year (Dec14) TTM:|
|Accounts Receivable was $875.3 Mil.|
Revenue was 335.821 + 137.992 + 332.006 + 155.675 = $961.5 Mil.
Gross Profit was 253.681 + 81.876 + 278.413 + 128.735 = $742.7 Mil.
Total Current Assets was $2,109.7 Mil.
Total Assets was $3,274.1 Mil.
Property, Plant and Equipment(Net PPE) was $354.5 Mil.
Depreciation, Depletion and Amortization(DDA) was $19.5 Mil.
Selling, General & Admin. Expense(SGA) was $518.2 Mil.
Total Current Liabilities was $1,197.6 Mil.
Long-Term Debt was $1,156.3 Mil.
Net Income was -11.153 + -17.894 + 67.572 + 5.202 = $43.7 Mil.
Non Operating Income was 2.377 + -2.116 + 0.245 + -1.959 = $-1.5 Mil.
Cash Flow from Operations was 251.71 + -30.352 + 211.063 + -277.363 = $155.1 Mil.
|Accounts Receivable was $913.7 Mil.
Revenue was 351.224 + 94.201 + 335.817 + 156.811 = $938.1 Mil.
Gross Profit was 281.366 + 77.566 + 294.658 + 121.162 = $774.8 Mil.
Total Current Assets was $2,039.5 Mil.
Total Assets was $3,134.8 Mil.
Property, Plant and Equipment(Net PPE) was $364.4 Mil.
Depreciation, Depletion and Amortization(DDA) was $20.6 Mil.
Selling, General & Admin. Expense(SGA) was $486.3 Mil.
Total Current Liabilities was $1,429.2 Mil.
Long-Term Debt was $745.0 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)|
|=||(875.265 / 961.494)||/||(913.743 / 938.053)|
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)|
|=||(81.876 / 938.053)||/||(253.681 / 961.494)|
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 - (2109.739 + 354.494) / 3274.129)||/||(1 - (2039.522 + 364.382) / 3134.82)|
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))|
|=||(20.575 / (20.575 + 364.382))||/||(19.481 / (19.481 + 354.494))|
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)|
|=||(518.243 / 961.494)||/||(486.296 / 938.053)|
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)|
|=||((1156.267 + 1197.583) / 3274.129)||/||((745 + 1429.207) / 3134.82)|
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|
|=||(43.727 - -1.453||-||155.058)||/||3274.129|
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 -2.63 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
Sothebys Annual Data
Sothebys Quarterly Data