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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 -2.62.
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 * 1.0002||+||0.528 * 0.917||+||0.404 * 0.7038||+||0.892 * 1.0275||+||0.115 * 0.9935|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 1.0377||+||4.679 * -0.043||-||0.327 * 1.3782|
|This Year (Sep14) TTM:||Last Year (Sep13) TTM:|
|Accounts Receivable was $5,032 Mil.|
Revenue was 14405 + 14917 + 14461 + 14386 = $58,169 Mil.
Gross Profit was 2629 + 2573 + 2728 + 2318 = $10,248 Mil.
Total Current Assets was $25,730 Mil.
Total Assets was $69,573 Mil.
Property, Plant and Equipment(Net PPE) was $17,694 Mil.
Depreciation, Depletion and Amortization(DDA) was $2,744 Mil.
Selling, General & Admin. Expense(SGA) was $3,121 Mil.
Total Current Liabilities was $12,087 Mil.
Long-Term Debt was $19,001 Mil.
Net Income was 937 + 967 + 1049 + 1048 = $4,001 Mil.
Non Operating Income was 206 + -202 + 280 + 728 = $1,012 Mil.
Cash Flow from Operations was 1775 + 1395 + 575 + 2233 = $5,978 Mil.
|Accounts Receivable was $4,896 Mil.
Revenue was 13734 + 14577 + 14383 + 13917 = $56,611 Mil.
Gross Profit was 2018 + 2474 + 2676 + 1978 = $9,146 Mil.
Total Current Assets was $25,009 Mil.
Total Assets was $90,925 Mil.
Property, Plant and Equipment(Net PPE) was $17,360 Mil.
Depreciation, Depletion and Amortization(DDA) was $2,672 Mil.
Selling, General & Admin. Expense(SGA) was $2,927 Mil.
Total Current Liabilities was $11,993 Mil.
Long-Term Debt was $17,487 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)|
|=||(5032 / 58169)||/||(4896 / 56611)|
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)|
|=||(2573 / 56611)||/||(2629 / 58169)|
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 - (25730 + 17694) / 69573)||/||(1 - (25009 + 17360) / 90925)|
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))|
|=||(2672 / (2672 + 17360))||/||(2744 / (2744 + 17694))|
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)|
|=||(3121 / 58169)||/||(2927 / 56611)|
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)|
|=||((19001 + 12087) / 69573)||/||((17487 + 11993) / 90925)|
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|
|=||(4001 - 1012||-||5978)||/||69573|
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 -2.95 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