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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 Electro Rent Corp was 3.82. The lowest was -4.56. And the median was -3.13.
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 Electro Rent 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 * 0.8526||+||0.528 * 0.8971||+||0.404 * 0.7064||+||0.892 * 0.8225||+||0.115 * 0.9786|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 1.1698||+||4.679 * -0.1401||-||0.327 * 0.8982|
|This Year (Feb16) TTM:||Last Year (Feb15) TTM:|
|Accounts Receivable was $22.5 Mil.|
Revenue was 39.498 + 43.31 + 53.343 + 60.413 = $196.6 Mil.
Gross Profit was 28.916 + 32.221 + 33.565 + 34.596 = $129.3 Mil.
Total Current Assets was $40.7 Mil.
Total Assets was $287.2 Mil.
Property, Plant and Equipment(Net PPE) was $225.4 Mil.
Depreciation, Depletion and Amortization(DDA) was $57.9 Mil.
Selling, General & Admin. Expense(SGA) was $57.7 Mil.
Total Current Liabilities was $62.1 Mil.
Long-Term Debt was $0.0 Mil.
Net Income was 1.009 + 2.19 + 2.47 + 3.441 = $9.1 Mil.
Non Operating Income was 0.001 + 0.013 + 0 + 0 = $0.0 Mil.
Cash Flow from Operations was 14.715 + 4.828 + 16.654 + 13.123 = $49.3 Mil.
|Accounts Receivable was $32.0 Mil.
Revenue was 56.342 + 59.703 + 61.871 + 61.077 = $239.0 Mil.
Gross Profit was 32.2 + 35.495 + 36.395 + 36.936 = $141.0 Mil.
Total Current Assets was $40.2 Mil.
Total Assets was $301.7 Mil.
Property, Plant and Equipment(Net PPE) was $230.2 Mil.
Depreciation, Depletion and Amortization(DDA) was $57.6 Mil.
Selling, General & Admin. Expense(SGA) was $59.9 Mil.
Total Current Liabilities was $72.6 Mil.
Long-Term Debt was $0.0 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)|
|=||(22.471 / 196.564)||/||(32.046 / 238.993)|
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)|
|=||(141.026 / 238.993)||/||(129.298 / 196.564)|
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 - (40.705 + 225.359) / 287.169)||/||(1 - (40.179 + 230.158) / 301.727)|
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))|
|=||(57.597 / (57.597 + 230.158))||/||(57.945 / (57.945 + 225.359))|
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)|
|=||(57.664 / 196.564)||/||(59.932 / 238.993)|
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)|
|=||((0 + 62.07) / 287.169)||/||((0 + 72.606) / 301.727)|
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|
|=||(9.11 - 0.014||-||49.32)||/||287.169|
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.
Electro Rent Corp has a M-score of -3.60 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
Electro Rent Corp Annual Data
Electro Rent Corp Quarterly Data