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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 Education Management Corp was -1.73. The lowest was -4.96. And the median was -2.69.
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 Education Management 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 * 1.1195||+||0.528 * 1.4396||+||0.404 * 0.6553||+||0.892 * 0.9096||+||0.115 * 0.9105|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 0.7473||+||4.679 * -0.3913||-||0.327 * 1.3994|
|This Year (Jun14) TTM:||Last Year (Jun13) TTM:|
|Accounts Receivable was $210 Mil.|
Revenue was 503.481 + 595.202 + 593.673 + 580.38 = $2,273 Mil.
Gross Profit was -870.218 + 595.202 + 248.086 + 222.692 = $196 Mil.
Total Current Assets was $876 Mil.
Total Assets was $1,877 Mil.
Property, Plant and Equipment(Net PPE) was $429 Mil.
Depreciation, Depletion and Amortization(DDA) was $153 Mil.
Selling, General & Admin. Expense(SGA) was $-36 Mil.
Total Current Liabilities was $635 Mil.
Long-Term Debt was $1,272 Mil.
Net Income was -187.845 + -467.646 + 1.089 + -9.514 = $-664 Mil.
Non Operating Income was 0 + 0 + 0 + 0 = $0 Mil.
Cash Flow from Operations was -101.529 + 132.485 + -87.517 + 127.207 = $71 Mil.
|Accounts Receivable was $206 Mil.
Revenue was 595.236 + 638.903 + 654.895 + 609.564 = $2,499 Mil.
Gross Profit was -851.861 + 638.903 + 294.518 + 228.268 = $310 Mil.
Total Current Assets was $772 Mil.
Total Assets was $2,423 Mil.
Property, Plant and Equipment(Net PPE) was $526 Mil.
Depreciation, Depletion and Amortization(DDA) was $165 Mil.
Selling, General & Admin. Expense(SGA) was $-53 Mil.
Total Current Liabilities was $486 Mil.
Long-Term Debt was $1,273 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)|
|=||(210.182 / 2272.736)||/||(206.406 / 2498.598)|
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)|
|=||(595.202 / 2498.598)||/||(-870.218 / 2272.736)|
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 - (875.966 + 429.457) / 1877.036)||/||(1 - (771.619 + 525.625) / 2423.356)|
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))|
|=||(164.712 / (164.712 + 525.625))||/||(152.501 / (152.501 + 429.457))|
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)|
|=||(-35.709 / 2272.736)||/||(-52.531 / 2498.598)|
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)|
|=||((1271.586 + 635.325) / 1877.036)||/||((1273.164 + 486.098) / 2423.356)|
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|
|=||(-663.916 - 0||-||70.646)||/||1877.036|
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.
Education Management Corp has a M-score of -4.29 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
Education Management Corp Annual Data
Education Management Corp Quarterly Data