CIT Group Beneish M-Score Calculation
The M-score was created by Professor Messod Beneish. Instead of measuring the bankruptcy risk (Altman Z-Score) or business trend (Piotroski 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 CIT Group 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 * 0.8439 | + | 0.528 * 1 | + | 0.404 * 1.0168 | + | 0.892 * 1.0607 | + | 0.115 * 0.9608 |
| - | 0.172 * SGAI | + | 4.679 * TATA | - | 0.327 * LVGI |
| - | 0.172 * 0.8736 | + | 4.679 * -0.003829 | - | 0.327 * 0.7168 |
| = | -2.47 |
* For Operating Data section: All numbers are indicated by the unit behind each term and all currency related amount are in USD.
* For other sections: All numbers are in millions except for per share data, ratio, and percentage. All currency related amount are indicated in the company's associated stock exchange currency.
| This Year (Sep21) TTM: | Last Year (Sep20) TTM: |
Total Receivables was $2,295 Mil.
Revenue was 547 + 586.1 + 665.1 + 611.4 = $2,410 Mil.
Gross Profit was 547 + 586.1 + 665.1 + 611.4 = $2,410 Mil.
Total Current Assets was $12,361 Mil.
Total Assets was $54,420 Mil.
Property, Plant and Equipment(Net PPE) was $8,367 Mil.
Depreciation, Depletion and Amortization(DDA) was $338 Mil.
Selling, General, & Admin. Expense(SGA) was $832 Mil.
Total Current Liabilities was $725 Mil.
Long-Term Debt & Capital Lease Obligation was $4,536 Mil.
Net Income was 175.5 + 226.9 + 303.8 + 8.6 = $715 Mil.
Non Operating Income was 0 + 0 + 0 + 0 = $0 Mil.
Cash Flow from Operations was 188.8 + 184.4 + 274.1 + 275.9 = $923 Mil.
|
Total Receivables was $2,564 Mil.
Revenue was 580.8 + 527.4 + 605 + 558.6 = $2,272 Mil.
Gross Profit was 580.8 + 527.4 + 605 + 558.6 = $2,272 Mil.
Total Current Assets was $15,593 Mil.
Total Assets was $60,865 Mil.
Property, Plant and Equipment(Net PPE) was $8,212 Mil.
Depreciation, Depletion and Amortization(DDA) was $318 Mil.
Selling, General, & Admin. Expense(SGA) was $898 Mil.
Total Current Liabilities was $657 Mil.
Long-Term Debt & Capital Lease Obligation was $7,552 Mil.
|
1. DSRI = Days Sales in Receivables Index
Measured as the ratio of Revenue in Total Receivables in year t to year t-1.
A large increase in DSR could be indicative of revenue inflation.
| DSRI | = | (Receivables_t / Revenue_t) | / | (Receivables_t-1 / Revenue_t-1) |
| = | (2294.9 / 2409.6) | / | (2563.9 / 2271.8) |
| = | 0.952399 | / | 1.128576 |
| | = | 0.8439 |
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.
| GMI | = | GrossMargin_t-1 | / | GrossMargin_t |
| = | (GrossProfit_t-1 / Revenue_t-1) | / | (GrossProfit_t / Revenue_t) |
| = | (2271.8 / 2271.8) | / | (2409.6 / 2409.6) |
| = | 1 | / | 1 |
| | = | 1 |
3. AQI = Asset Quality Index
AQI is the ratio of asset quality in year t to year t-1.
Asset quality is measured as the ratio of non-current assets other than Property, Plant and Equipment to Total Assets.
| AQI | = | (1 - (CurrentAssets_t + PPE_t) / TotalAssets_t) | / | (1 - (CurrentAssets_t-1 + PPE_t-1) / TotalAssets_t-1) |
| = | (1 - (12360.9 + 8366.9) / 54420) | / | (1 - (15593.4 + 8211.6) / 60865) |
| = | 0.619114 | / | 0.608889 |
| | = | 1.0168 |
4. SGI = Sales Growth Index
Ratio of Revenue 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.
| SGI | = | Sales_t | / | Sales_t-1 |
| = | Revenue_t | / | Revenue_t-1 |
| = | 2409.6 | / | 2271.8 |
| | = | 1.0607 |
5. DEPI = Depreciation Index
Measured as the ratio of the rate of Depreciation, Depletion and Amortization 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)) |
| = | (318.3 / (318.3 + 8211.6)) | / | (338.1 / (338.1 + 8366.9)) |
| = | 0.037316 | / | 0.03884 |
| | = | 0.9608 |
Note: If the Depreciation, Depletion and Amortization data is not available, we assume that the depreciation rate is constant and set the Depreciation Index to 1.
6. SGAI = Sales, General and Administrative expenses Index
The ratio of Selling, General, & Admin. Expense(SGA) to Sales 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) |
| = | (831.6 / 2409.6) | / | (897.5 / 2271.8) |
| = | 0.34512 | / | 0.395061 |
| | = | 0.8736 |
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 in leverage
| LVGI | = | ((LTD_t + CurrentLiabilities_t) / TotalAssets_t) | / | ((LTD_t-1 + CurrentLiabilities_t-1) / TotalAssets_t-1) |
| = | ((4536 + 725.2) / 54420) | / | ((7552.2 + 656.5) / 60865) |
| = | 0.096678 | / | 0.134867 |
| | = | 0.7168 |
8. TATA = Total Accruals to Total Assets
Total accruals calculated as the change in working capital accounts other than cash less depreciation.
| TATA | = | (IncomefromContinuingOperations_t | - | CashFlowsfromOperations_t) | / | TotalAssets_t |
| = | (NetIncome_t - NonOperatingIncome_t | - | CashFlowsfromOperations_t) | / | TotalAssets_t |
| = | (714.8 - 0 | - | 923.2) | / | 54420 |
| | = | -0.003829 |
An M-Score of equal or less than -1.78 suggests that the company is unlikely to be a manipulator. An M-Score of greater than -1.78 signals that the company is likely to be a manipulator.
CIT Group has a M-score of -2.47 suggests that the company is unlikely to be a manipulator.
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