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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 Dow Chemical Co was -1.08. The lowest was -3.13. And the median was -2.61.
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 Dow Chemical Co 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 * 1.1589||+||0.528 * 1.0272||+||0.404 * 1.0578||+||0.892 * 0.9873||+||0.115 * 1.1391|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 1.1264||+||4.679 * -0.0156||-||0.327 * 1.0336|
* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.
|This Year (Dec16) TTM:||Last Year (Dec15) TTM:|
|Accounts Receivable was $4,666 Mil.|
Revenue was 13020 + 12483 + 11952 + 10703 = $48,158 Mil.
Gross Profit was 2446 + 2642 + 2677 + 2752 = $10,517 Mil.
Total Current Assets was $23,659 Mil.
Total Assets was $79,511 Mil.
Property, Plant and Equipment(Net PPE) was $23,486 Mil.
Depreciation, Depletion and Amortization(DDA) was $2,862 Mil.
Selling, General & Admin. Expense(SGA) was $3,304 Mil.
Total Current Liabilities was $12,604 Mil.
Long-Term Debt was $20,456 Mil.
Net Income was 52 + 804 + 3208 + 254 = $4,318 Mil.
Non Operating Income was -965 + 66 + 2178 + -1200 = $79 Mil.
Cash Flow from Operations was 1863 + 1345 + 2218 + 52 = $5,478 Mil.
|Accounts Receivable was $4,078 Mil.
Revenue was 11462 + 12036 + 12910 + 12370 = $48,778 Mil.
Gross Profit was 2656 + 2687 + 2764 + 2835 = $10,942 Mil.
Total Current Assets was $23,941 Mil.
Total Assets was $67,938 Mil.
Property, Plant and Equipment(Net PPE) was $17,854 Mil.
Depreciation, Depletion and Amortization(DDA) was $2,521 Mil.
Selling, General & Admin. Expense(SGA) was $2,971 Mil.
Total Current Liabilities was $11,115 Mil.
Long-Term Debt was $16,215 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)|
|=||(4666 / 48158)||/||(4078 / 48778)|
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)|
|=||(10942 / 48778)||/||(10517 / 48158)|
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 - (23659 + 23486) / 79511)||/||(1 - (23941 + 17854) / 67938)|
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))|
|=||(2521 / (2521 + 17854))||/||(2862 / (2862 + 23486))|
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)|
|=||(3304 / 48158)||/||(2971 / 48778)|
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)|
|=||((20456 + 12604) / 79511)||/||((16215 + 11115) / 67938)|
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|
|=||(4318 - 79||-||5478)||/||79511|
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.
Dow Chemical Co has a M-score of -2.40 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
Dow Chemical Co Annual Data
Dow Chemical Co Quarterly Data