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Education Management Corp (NAS:EDMC)
Beneish M-Score
-1.05 (As of Today)

Warning Sign:

Beneish M-Score -1.05 higher than -2.22, which implies that it might have manipulated its financial results.

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.

Education Management Corp has a M-score of -1.05 signals that the company is a manipulator.

EDMC' s 10-Year Beneish M-Score Range
Min: -5.77   Max: -1.05
Current: -1.05

-5.77
-1.05

During the past 13 years, the highest Beneish M-Score of Education Management Corp was -1.05. The lowest was -5.77. And the median was -2.68.


Definition

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 * 1.2423+0.528 * 6.2149+0.404 * 0.7178+0.892 * 0.93+0.115 * 0.8908
-0.172 * SGAI+4.679 * TATA-0.327 * LVGI
-0.172 * -0.0504+4.679 * -0.3084-0.327 * 1.2766
=-1.05

* All numbers are in millions except for per share data and ratio. All numbers are in their own currency.

This Year (Mar14) TTM:Last Year (Mar13) TTM:
Accounts Receivable was $177 Mil.
Revenue was 595.202 + 593.673 + 580.38 + 595.236 = $2,364 Mil.
Gross Profit was 595.202 + 248.086 + 222.692 + -851.861 = $214 Mil.
Total Current Assets was $813 Mil.
Total Assets was $1,877 Mil.
Property, Plant and Equipment(Net PPE) was $443 Mil.
Depreciation, Depletion and Amortization(DDA) was $155 Mil.
Selling, General & Admin. Expense(SGA) was $-49 Mil.
Total Current Liabilities was $454 Mil.
Long-Term Debt was $1,272 Mil.
Net Income was -467.646 + 1.089 + -9.514 + -25.619 = $-502 Mil.
Non Operating Income was 0 + 0 + 0 + 0 = $0 Mil.
Cash Flow from Operations was 132.485 + -87.517 + 127.207 + -94.895 = $77 Mil.
Accounts Receivable was $153 Mil.
Revenue was 638.903 + 654.895 + 609.564 + 639.185 = $2,543 Mil.
Gross Profit was 638.903 + 294.518 + 228.268 + 269.25 = $1,431 Mil.
Total Current Assets was $780 Mil.
Total Assets was $2,457 Mil.
Property, Plant and Equipment(Net PPE) was $544 Mil.
Depreciation, Depletion and Amortization(DDA) was $164 Mil.
Selling, General & Admin. Expense(SGA) was $1,044 Mil.
Total Current Liabilities was $486 Mil.
Long-Term Debt was $1,283 Mil.



1. DSRI = Days Sales in Receivables Index

Measured as the ratio of days’ sales in 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)
=(176.847 / 2364.491) / (153.069 / 2542.547)
=0.07479284 / 0.06020302
=1.2423

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)
=(248.086 / 2542.547) / (595.202 / 2364.491)
=0.56279746 / 0.09055606
=6.2149

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 plant, property and equipment to total assets.

AQI=(1 - (CurrentAssets_t + PPE_t) / TotalAssets_t) / (1 - (CurrentAssets_t-1 + PPE_t-1) / TotalAssets_t-1)
=(1 - (812.524 + 442.902) / 1877.35) / (1 - (779.561 + 543.731) / 2457.362)
=0.3312776 / 0.46149896
=0.7178

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.

SGI=Sales_t / Sales_t-1
=Revenue_t / Revenue_t-1
=2364.491 / 2542.547
=0.93

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))
=(163.636 / (163.636 + 543.731)) / (155.352 / (155.352 + 442.902))
=0.23133112 / 0.25967566
=0.8908

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)
=(-48.883 / 2364.491) / (1043.885 / 2542.547)
=-0.02067379 / 0.41056665
=-0.0504

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)
=((1271.986 + 454.021) / 1877.35) / ((1283.344 + 486.402) / 2457.362)
=0.91938477 / 0.72018123
=1.2766

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
=(-501.69 - 0 - 77.28) / 1877.35
=-0.3084

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 -1.05 signals that the company is likely to be a manipulator.


Related Terms

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


Historical Data

* All numbers are in millions except for per share data and ratio. All numbers are in their own currency.

Education Management Corp Annual Data

Jun04Jun05Jun06Jun07Jun08Jun09Jun10Jun11Jun12Jun13
DSRI 0.98630.79330.88741.19071.00241.18241.10080.81661.34781.1217
GMI 0.96620.96790.95460.83780.99980.99080.94811.01041.07441.0832
AQI 1.28410.87552.18840.98220.96980.94940.95890.97420.69860.9284
SGI 1.33281.1951.1481.16541.2351.19431.24711.15110.95610.905
DEPI 0.97681.00731.05190.88131.07761.02351.05330.88590.88670.8205
SGAI 11.02141.27930.90391.07631.02431.09370.95231.04090.9982
LVGI 1.45870.72032.42870.97180.98060.97510.80610.97581.59141.0854
TATA -0.1012-0.0956-0.0503-0.037-0.0212-0.0441-0.0203-0.0349-0.5267-0.1961
M-score -2.72-2.92-2.74-2.41-2.38-2.36-2.25-2.68-4.96-3.40

Education Management Corp Quarterly Data

Dec11Mar12Jun12Sep12Dec12Mar13Jun13Sep13Dec13Mar14
DSRI 1.38221.27861.34781.25211.09951.21521.12171.58061.13381.2423
GMI 1.03441.04461.07441.10981.12460.83563.67633.56013.98676.2149
AQI 0.99230.9530.69860.70810.71840.73270.92840.88450.93980.7178
SGI 1.04080.99090.95610.92590.90840.90250.9050.91850.9240.93
DEPI 0.87360.87780.88670.8710.82990.83470.82050.86340.90570.8908
SGAI 1.03891.06911.04081.02731.01091.4756-0.0761-0.0807-0.0747-0.0504
LVGI 0.96571.05361.59141.54291.61531.4751.08541.10441.10991.2766
TATA -0.0274-0.0773-0.5267-0.5078-0.5804-0.6302-0.1961-0.167-0.1959-0.3084
M-score -2.22-2.63-4.96-4.95-5.46-5.77-1.85-1.36-1.65-1.05
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