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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 6 years, the highest Beneish M-Score of Fortune Brands Home & Security Inc was -2.54. The lowest was -2.64. And the median was -2.54.
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 Fortune Brands Home & Security 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 * 1.0526||+||0.528 * 1.0258||+||0.404 * 0.958||+||0.892 * 1.0823||+||0.115 * 1.0458|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 0.9299||+||4.679 * -0.0233||-||0.327 * 1.272|
|This Year (Dec14) TTM:||Last Year (Dec13) TTM:|
|Accounts Receivable was $459 Mil.|
Revenue was 940.3 + 1097.7 + 1142.2 + 966.2 = $4,146 Mil.
Gross Profit was 317.1 + 378.3 + 400.4 + 314.7 = $1,411 Mil.
Total Current Assets was $1,299 Mil.
Total Assets was $4,053 Mil.
Property, Plant and Equipment(Net PPE) was $540 Mil.
Depreciation, Depletion and Amortization(DDA) was $99 Mil.
Selling, General & Admin. Expense(SGA) was $988 Mil.
Total Current Liabilities was $700 Mil.
Long-Term Debt was $644 Mil.
Net Income was 45.1 + -21.1 + 93.3 + 40.8 = $158 Mil.
Non Operating Income was -1.1 + 0.3 + -0.8 + 0.5 = $-1 Mil.
Cash Flow from Operations was 143.5 + 140.9 + 125.9 + -156.6 = $254 Mil.
|Accounts Receivable was $403 Mil.
Revenue was 855.7 + 1045 + 1040.4 + 890 = $3,831 Mil.
Gross Profit was 300.8 + 358.9 + 377 + 300.2 = $1,337 Mil.
Total Current Assets was $1,327 Mil.
Total Assets was $4,178 Mil.
Property, Plant and Equipment(Net PPE) was $468 Mil.
Depreciation, Depletion and Amortization(DDA) was $90 Mil.
Selling, General & Admin. Expense(SGA) was $981 Mil.
Total Current Liabilities was $739 Mil.
Long-Term Debt was $350 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)|
|=||(458.9 / 4146.4)||/||(402.8 / 3831.1)|
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)|
|=||(378.3 / 3831.1)||/||(317.1 / 4146.4)|
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 - (1299.1 + 539.8) / 4052.9)||/||(1 - (1327.4 + 468.3) / 4178.1)|
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))|
|=||(90.4 / (90.4 + 468.3))||/||(98.8 / (98.8 + 539.8))|
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)|
|=||(987.5 / 4146.4)||/||(981.2 / 3831.1)|
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)|
|=||((643.7 + 699.6) / 4052.9)||/||((350 + 738.7) / 4178.1)|
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|
|=||(158.1 - -1.1||-||253.7)||/||4052.9|
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.
Fortune Brands Home & Security Inc has a M-score of -2.54 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
Fortune Brands Home & Security Inc Annual Data
Fortune Brands Home & Security Inc Quarterly Data