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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.
Education Management Corp has a M-score of -3.29 suggests that the company is not a manipulator.
During the past 13 years, the highest Beneish M-Score of Education Management Corp was -1.85. The lowest was -5.73. And the median was -2.76.
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 * 1.261||+||0.528 * 1.0284||+||0.404 * 0.9398||+||0.892 * 0.924||+||0.115 * 0.9057|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 1.0421||+||4.679 * -0.1959||-||0.327 * 1.1099|
|This Year (Dec13) TTM:||Last Year (Dec12) TTM:|
|Accounts Receivable was $201 Mil.|
Revenue was 593.673 + 580.38 + 595.236 + 638.903 = $2,408 Mil.
Gross Profit was 248.086 + 222.692 + 239.947 + 288.769 = $999 Mil.
Total Current Assets was $679 Mil.
Total Assets was $2,180 Mil.
Property, Plant and Equipment(Net PPE) was $477 Mil.
Depreciation, Depletion and Amortization(DDA) was $159 Mil.
Selling, General & Admin. Expense(SGA) was $692 Mil.
Total Current Liabilities was $359 Mil.
Long-Term Debt was $1,272 Mil.
Net Income was 1.089 + -9.514 + -2.033 + -283.994 = $-294 Mil.
Non Operating Income was 0 + 0 + 0 + -5.232 = $-5 Mil.
Cash Flow from Operations was -87.517 + 127.207 + -94.895 + 193.025 = $138 Mil.
|Accounts Receivable was $173 Mil.
Revenue was 654.895 + 609.564 + 639.185 + 702.499 = $2,606 Mil.
Gross Profit was 294.518 + 228.268 + 269.25 + 320.295 = $1,112 Mil.
Total Current Assets was $786 Mil.
Total Assets was $2,694 Mil.
Property, Plant and Equipment(Net PPE) was $562 Mil.
Depreciation, Depletion and Amortization(DDA) was $164 Mil.
Selling, General & Admin. Expense(SGA) was $719 Mil.
Total Current Liabilities was $369 Mil.
Long-Term Debt was $1,448 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)|
|=||(201.38 / 2408.192)||/||(172.826 / 2606.143)|
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)|
|=||(222.692 / 2606.143)||/||(248.086 / 2408.192)|
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 - (679.457 + 477.222) / 2180.088)||/||(1 - (786.068 + 562.184) / 2693.818)|
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))|
|=||(163.979 / (163.979 + 562.184))||/||(158.51 / (158.51 + 477.222))|
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)|
|=||(692.044 / 2408.192)||/||(718.684 / 2606.143)|
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)|
|=||((1272.387 + 359.389) / 2180.088)||/||((1447.699 + 368.982) / 2693.818)|
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|
|=||(-294.452 - -5.232||-||137.82)||/||2180.088|
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 -3.29 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