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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 -4.43. And the median was -3.08.
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 * 0.953||+||0.528 * 1.0585||+||0.404 * 1.2162||+||0.892 * 0.994||+||0.115 * 0.9905|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 1.0357||+||4.679 * -0.1165||-||0.327 * 1.0236|
|This Year (Feb15) TTM:||Last Year (Feb14) TTM:|
|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.
Net Income was 2.425 + 4.795 + 4.771 + 4.593 = $16.6 Mil.
Non Operating Income was 0 + 1.39 + 0 + 0 = $1.4 Mil.
Cash Flow from Operations was 16.5 + 10.564 + 12.432 + 10.852 = $50.3 Mil.
|Accounts Receivable was $33.8 Mil.
Revenue was 62.016 + 57.876 + 60.168 + 60.366 = $240.4 Mil.
Gross Profit was 35.94 + 37.379 + 37.838 + 39.019 = $150.2 Mil.
Total Current Assets was $39.0 Mil.
Total Assets was $301.9 Mil.
Property, Plant and Equipment(Net PPE) was $237.0 Mil.
Depreciation, Depletion and Amortization(DDA) was $58.6 Mil.
Selling, General & Admin. Expense(SGA) was $58.2 Mil.
Total Current Liabilities was $71.0 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)|
|=||(32.046 / 238.993)||/||(33.827 / 240.426)|
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)|
|=||(35.495 / 240.426)||/||(32.2 / 238.993)|
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 - (40.179 + 230.158) / 301.727)||/||(1 - (39.041 + 237.012) / 301.876)|
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))|
|=||(58.609 / (58.609 + 237.012))||/||(57.597 / (57.597 + 230.158))|
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)|
|=||(59.932 / 238.993)||/||(58.213 / 240.426)|
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 + 72.606) / 301.727)||/||((0 + 70.969) / 301.876)|
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|
|=||(16.584 - 1.39||-||50.348)||/||301.727|
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 -2.97 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