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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 -2.64.
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 * 1.1972||+||0.528 * 0.9293||+||0.404 * 1.0774||+||0.892 * 0.9014||+||0.115 * 1.1854|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 1.1507||+||4.679 * -0.026||-||0.327 * 0.9349|
|This Year (Sep16) TTM:||Last Year (Sep15) TTM:|
|Accounts Receivable was $4,746 Mil.|
Revenue was 12483 + 11952 + 10703 + 11462 = $46,600 Mil.
Gross Profit was 2642 + 2677 + 2752 + 2656 = $10,727 Mil.
Total Current Assets was $24,778 Mil.
Total Assets was $80,624 Mil.
Property, Plant and Equipment(Net PPE) was $23,311 Mil.
Depreciation, Depletion and Amortization(DDA) was $2,667 Mil.
Selling, General & Admin. Expense(SGA) was $3,150 Mil.
Total Current Liabilities was $12,655 Mil.
Long-Term Debt was $20,423 Mil.
Net Income was 804 + 3208 + 254 + 3612 = $7,878 Mil.
Non Operating Income was 66 + 2178 + -1200 + 2971 = $4,015 Mil.
Cash Flow from Operations was 1345 + 2218 + 52 + 2341 = $5,956 Mil.
|Accounts Receivable was $4,398 Mil.
Revenue was 12036 + 12910 + 12370 + 14384 = $51,700 Mil.
Gross Profit was 2687 + 2764 + 2835 + 2773 = $11,059 Mil.
Total Current Assets was $24,852 Mil.
Total Assets was $69,884 Mil.
Property, Plant and Equipment(Net PPE) was $18,858 Mil.
Depreciation, Depletion and Amortization(DDA) was $2,613 Mil.
Selling, General & Admin. Expense(SGA) was $3,037 Mil.
Total Current Liabilities was $13,205 Mil.
Long-Term Debt was $17,462 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)|
|=||(4746 / 46600)||/||(4398 / 51700)|
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)|
|=||(11059 / 51700)||/||(10727 / 46600)|
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 - (24778 + 23311) / 80624)||/||(1 - (24852 + 18858) / 69884)|
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))|
|=||(2613 / (2613 + 18858))||/||(2667 / (2667 + 23311))|
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)|
|=||(3150 / 46600)||/||(3037 / 51700)|
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)|
|=||((20423 + 12655) / 80624)||/||((17462 + 13205) / 69884)|
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|
|=||(7878 - 4015||-||5956)||/||80624|
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 -2.50 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