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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 -2.35.
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 * 1.5705||+||0.528 * 1.0094||+||0.404 * 1.1545||+||0.892 * 1.1495||+||0.115 * 0.9062|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 0.9121||+||4.679 * 0.037||-||0.327 * 1.4376|
|This Year (Sep14) TTM:||Last Year (Sep13) TTM:|
|Accounts Receivable was $450.2 Mil.|
Revenue was 94.201 + 335.817 + 156.811 + 339.201 = $926.0 Mil.
Gross Profit was 77.566 + 294.658 + 121.162 + 298.403 = $791.8 Mil.
Total Current Assets was $1,359.3 Mil.
Total Assets was $2,462.7 Mil.
Property, Plant and Equipment(Net PPE) was $369.3 Mil.
Depreciation, Depletion and Amortization(DDA) was $20.6 Mil.
Selling, General & Admin. Expense(SGA) was $492.2 Mil.
Total Current Liabilities was $804.7 Mil.
Long-Term Debt was $749.0 Mil.
Net Income was -27.726 + 77.632 + -6.114 + 90.753 = $134.5 Mil.
Non Operating Income was 1.438 + 0.694 + -1.442 + 0.516 = $1.2 Mil.
Cash Flow from Operations was -186.254 + 204.573 + -268.132 + 291.94 = $42.1 Mil.
|Accounts Receivable was $249.3 Mil.
Revenue was 107.864 + 304.868 + 101.745 + 291.123 = $805.6 Mil.
Gross Profit was 78.168 + 269.61 + 92.596 + 254.888 = $695.3 Mil.
Total Current Assets was $1,128.2 Mil.
Total Assets was $2,029.5 Mil.
Property, Plant and Equipment(Net PPE) was $377.4 Mil.
Depreciation, Depletion and Amortization(DDA) was $18.9 Mil.
Selling, General & Admin. Expense(SGA) was $469.4 Mil.
Total Current Liabilities was $375.5 Mil.
Long-Term Debt was $515.2 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)|
|=||(450.153 / 926.03)||/||(249.348 / 805.6)|
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)|
|=||(294.658 / 805.6)||/||(77.566 / 926.03)|
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 - (1359.328 + 369.333) / 2462.745)||/||(1 - (1128.166 + 377.368) / 2029.547)|
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))|
|=||(18.94 / (18.94 + 377.368))||/||(20.563 / (20.563 + 369.333))|
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)|
|=||(492.197 / 926.03)||/||(469.434 / 805.6)|
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)|
|=||((749 + 804.662) / 2462.745)||/||((515.151 + 375.465) / 2029.547)|
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|
|=||(134.545 - 1.206||-||42.127)||/||2462.745|
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 -1.72 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