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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 Chesapeake Energy Corp was 1.67. The lowest was -9.65. And the median was -2.85.
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 Chesapeake Energy Corp 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 * 0.8356||+||0.528 * 1.0352||+||0.404 * 0.7938||+||0.892 * 1.1967||+||0.115 * 0.8813|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 0.5888||+||4.679 * -0.062||-||0.327 * 0.9482|
|This Year (Dec14) TTM:||Last Year (Dec13) TTM:|
|Accounts Receivable was $2,010 Mil.|
Revenue was 5050 + 5703 + 5152 + 5046 = $20,951 Mil.
Gross Profit was 1942 + 1974 + 1420 + 1508 = $6,844 Mil.
Total Current Assets was $7,468 Mil.
Total Assets was $40,751 Mil.
Property, Plant and Equipment(Net PPE) was $32,515 Mil.
Depreciation, Depletion and Amortization(DDA) was $2,915 Mil.
Selling, General & Admin. Expense(SGA) was $322 Mil.
Total Current Liabilities was $5,863 Mil.
Long-Term Debt was $11,154 Mil.
Net Income was 640 + 662 + 191 + 425 = $1,918 Mil.
Non Operating Income was 0 + -28 + -212 + 52 = $-188 Mil.
Cash Flow from Operations was 829 + 1162 + 1352 + 1291 = $4,634 Mil.
|Accounts Receivable was $2,010 Mil.
Revenue was 4541 + 4867 + 4675 + 3424 = $17,507 Mil.
Gross Profit was 1330 + 1303 + 2123 + 1164 = $5,920 Mil.
Total Current Assets was $3,656 Mil.
Total Assets was $41,782 Mil.
Property, Plant and Equipment(Net PPE) was $37,134 Mil.
Depreciation, Depletion and Amortization(DDA) was $2,903 Mil.
Selling, General & Admin. Expense(SGA) was $457 Mil.
Total Current Liabilities was $5,515 Mil.
Long-Term Debt was $12,886 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)|
|=||(2010 / 20951)||/||(2010 / 17507)|
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)|
|=||(1974 / 17507)||/||(1942 / 20951)|
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 - (7468 + 32515) / 40751)||/||(1 - (3656 + 37134) / 41782)|
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))|
|=||(2903 / (2903 + 37134))||/||(2915 / (2915 + 32515))|
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)|
|=||(322 / 20951)||/||(457 / 17507)|
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)|
|=||((11154 + 5863) / 40751)||/||((12886 + 5515) / 41782)|
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|
|=||(1918 - -188||-||4634)||/||40751|
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.
Chesapeake Energy Corp has a M-score of -2.74 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
Chesapeake Energy Corp Annual Data
Chesapeake Energy Corp Quarterly Data