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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 ITT Educational Services, Inc. was -0.21. The lowest was -4.46. And the median was -2.93.
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 ITT Educational Services, Inc. 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 * 0.6299||+||0.528 * 1.0604||+||0.404 * 1.3039||+||0.892 * 0.8875||+||0.115 * 1.0043|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 1.1836||+||4.679 * -0.2537||-||0.327 * 1.0041|
|This Year (Sep14) TTM:||Last Year (Sep13) TTM:|
|Accounts Receivable was $69 Mil.|
Revenue was 242.561 + 238.096 + 237.923 + 267.173 = $986 Mil.
Gross Profit was 125.022 + 121.82 + 117.808 + 148.741 = $513 Mil.
Total Current Assets was $389 Mil.
Total Assets was $768 Mil.
Property, Plant and Equipment(Net PPE) was $155 Mil.
Depreciation, Depletion and Amortization(DDA) was $25 Mil.
Selling, General & Admin. Expense(SGA) was $511 Mil.
Total Current Liabilities was $438 Mil.
Long-Term Debt was $146 Mil.
Net Income was 10.322 + 0.392 + 3.622 + -39.381 = $-25 Mil.
Non Operating Income was 16.631 + 0 + 0 + 0 = $17 Mil.
Cash Flow from Operations was 33.122 + 21.563 + 36.918 + 61.422 = $153 Mil.
|Accounts Receivable was $123 Mil.
Revenue was 259.617 + 260.459 + 285.062 + 305.572 = $1,111 Mil.
Gross Profit was 139.413 + 136.918 + 160.886 + 176.178 = $613 Mil.
Total Current Assets was $400 Mil.
Total Assets was $739 Mil.
Property, Plant and Equipment(Net PPE) was $174 Mil.
Depreciation, Depletion and Amortization(DDA) was $28 Mil.
Selling, General & Admin. Expense(SGA) was $487 Mil.
Total Current Liabilities was $405 Mil.
Long-Term Debt was $154 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)|
|=||(68.587 / 985.753)||/||(122.693 / 1110.71)|
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)|
|=||(121.82 / 1110.71)||/||(125.022 / 985.753)|
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 - (388.658 + 155.459) / 767.506)||/||(1 - (399.875 + 174.394) / 739.302)|
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))|
|=||(28.121 / (28.121 + 174.394))||/||(24.943 / (24.943 + 155.459))|
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)|
|=||(511.199 / 985.753)||/||(486.634 / 1110.71)|
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)|
|=||((145.88 + 437.669) / 767.506)||/||((154.42 + 405.387) / 739.302)|
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|
|=||(-25.045 - 16.631||-||153.025)||/||767.506|
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.
ITT Educational Services, Inc. has a M-score of -3.99 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
ITT Educational Services, Inc. Annual Data
ITT Educational Services, Inc. Quarterly Data