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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 Eaton Corp PLC was -2.04. The lowest was -3.05. And the median was -2.52.
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 Eaton Corp PLC 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 * 1.0455||+||0.528 * 0.9811||+||0.404 * 1.0286||+||0.892 * 0.9175||+||0.115 * 1.0123|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 1.0349||+||4.679 * -0.0252||-||0.327 * 0.9661|
|This Year (Mar16) TTM:||Last Year (Mar15) TTM:|
|Accounts Receivable was $3,581 Mil.|
Revenue was 4813 + 5057 + 5203 + 5372 = $20,445 Mil.
Gross Profit was 1522 + 1630 + 1606 + 1697 = $6,455 Mil.
Total Current Assets was $7,013 Mil.
Total Assets was $31,583 Mil.
Property, Plant and Equipment(Net PPE) was $3,583 Mil.
Depreciation, Depletion and Amortization(DDA) was $932 Mil.
Selling, General & Admin. Expense(SGA) was $3,573 Mil.
Total Current Liabilities was $5,022 Mil.
Long-Term Debt was $7,572 Mil.
Net Income was 404 + 532 + 446 + 535 = $1,917 Mil.
Non Operating Income was 18 + 8 + 3 + 19 = $48 Mil.
Cash Flow from Operations was 371 + 742 + 973 + 579 = $2,665 Mil.
|Accounts Receivable was $3,733 Mil.
Revenue was 5223 + 5565 + 5728 + 5767 = $22,283 Mil.
Gross Profit was 1630 + 1718 + 1812 + 1742 = $6,902 Mil.
Total Current Assets was $7,940 Mil.
Total Assets was $32,696 Mil.
Property, Plant and Equipment(Net PPE) was $3,634 Mil.
Depreciation, Depletion and Amortization(DDA) was $960 Mil.
Selling, General & Admin. Expense(SGA) was $3,763 Mil.
Total Current Liabilities was $5,666 Mil.
Long-Term Debt was $7,829 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)|
|=||(3581 / 20445)||/||(3733 / 22283)|
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)|
|=||(1630 / 22283)||/||(1522 / 20445)|
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 - (7013 + 3583) / 31583)||/||(1 - (7940 + 3634) / 32696)|
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))|
|=||(960 / (960 + 3634))||/||(932 / (932 + 3583))|
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)|
|=||(3573 / 20445)||/||(3763 / 22283)|
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)|
|=||((7572 + 5022) / 31583)||/||((7829 + 5666) / 32696)|
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|
|=||(1917 - 48||-||2665)||/||31583|
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.
Eaton Corp PLC has a M-score of -2.62 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
Eaton Corp PLC Annual Data
Eaton Corp PLC Quarterly Data