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GuruFocus has detected 3 Warning Signs with Fortune Brands Home & Security Inc $FBHS.
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Fortune Brands Home & Security Inc (NYSE:FBHS)
Beneish M-Score
-2.67 (As of Today)

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.

Fortune Brands Home & Security Inc has a M-score of -2.67 suggests that the company is not a manipulator.

FBHS' s Beneish M-Score Range Over the Past 10 Years
Min: -2.67   Max: -2.5
Current: -2.67

-2.67
-2.5

During the past 8 years, the highest Beneish M-Score of Fortune Brands Home & Security Inc was -2.50. The lowest was -2.67. And the median was -2.55.


Definition

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 * 1.0066+0.528 * 0.9542+0.404 * 1.0149+0.892 * 1.0885+0.115 * 0.9913
-0.172 * SGAI+4.679 * TATA-0.327 * LVGI
-0.172 * 0.9908+4.679 * -0.047-0.327 * 1.1221
=-2.67

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.

This Year (Dec16) TTM:Last Year (Dec15) TTM:
Accounts Receivable was $551 Mil.
Revenue was 1301.6 + 1279 + 1297.8 + 1106.5 = $4,985 Mil.
Gross Profit was 474.1 + 478 + 474.7 + 377.8 = $1,805 Mil.
Total Current Assets was $1,445 Mil.
Total Assets was $5,129 Mil.
Property, Plant and Equipment(Net PPE) was $663 Mil.
Depreciation, Depletion and Amortization(DDA) was $123 Mil.
Selling, General & Admin. Expense(SGA) was $1,130 Mil.
Total Current Liabilities was $843 Mil.
Long-Term Debt was $1,431 Mil.
Net Income was 103.6 + 123.4 + 125.2 + 55.7 = $408 Mil.
Non Operating Income was -1.6 + -0.6 + 0.4 + 0.3 = $-2 Mil.
Cash Flow from Operations was 269.9 + 215.6 + 185.4 + -20.4 = $651 Mil.
Accounts Receivable was $503 Mil.
Revenue was 1224.7 + 1238.8 + 1165.1 + 950.8 = $4,579 Mil.
Gross Profit was 420.1 + 434.5 + 410.4 + 316.9 = $1,582 Mil.
Total Current Assets was $1,418 Mil.
Total Assets was $4,876 Mil.
Property, Plant and Equipment(Net PPE) was $628 Mil.
Depreciation, Depletion and Amortization(DDA) was $115 Mil.
Selling, General & Admin. Expense(SGA) was $1,048 Mil.
Total Current Liabilities was $758 Mil.
Long-Term Debt was $1,169 Mil.



1. DSRI = Days Sales in Receivables Index

Measured as the ratio of days’ sales in receivables in year t to year t-1.

A large increase in DSR could be indicative of revenue inflation.

DSRI=(Receivables_t / Revenue_t) / (Receivables_t-1 / Revenue_t-1)
=(550.7 / 4984.9) / (502.6 / 4579.4)
=0.11047363 / 0.10975237
=1.0066

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.

GMI=GrossMargin_t-1 / GrossMargin_t
=(GrossProfit_t-1 / Revenue_t-1) / (GrossProfit_t / Revenue_t)
=(1581.9 / 4579.4) / (1804.6 / 4984.9)
=0.34543827 / 0.36201328
=0.9542

3. AQI = Asset Quality Index

AQI is the ratio of asset quality in year t to year t-1.

Asset quality is measured as the ratio of non-current assets other than plant, property and equipment to total assets.

AQI=(1 - (CurrentAssets_t + PPE_t) / TotalAssets_t) / (1 - (CurrentAssets_t-1 + PPE_t-1) / TotalAssets_t-1)
=(1 - (1445.2 + 662.5) / 5128.5) / (1 - (1418 + 627.9) / 4875.7)
=0.58902213 / 0.58038846
=1.0149

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.

SGI=Sales_t / Sales_t-1
=Revenue_t / Revenue_t-1
=4984.9 / 4579.4
=1.0885

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))
=(115.1 / (115.1 + 627.9)) / (122.7 / (122.7 + 662.5))
=0.15491252 / 0.15626592
=0.9913

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)
=(1129.9 / 4984.9) / (1047.6 / 4579.4)
=0.22666453 / 0.22876359
=0.9908

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)
=((1431.1 + 842.8) / 5128.5) / ((1168.7 + 757.9) / 4875.7)
=0.44338501 / 0.39514326
=1.1221

8. TATA = Total Accruals to Total Assets

Total accruals calculated as the change in working capital accounts other than cash less depreciation.

TATA=(IncomefromContinuingOperations_t - CashFlowsfromOperations_t) / TotalAssets_t
=(NetIncome_t - NonOperatingIncome_t - CashFlowsfromOperations_t) / TotalAssets_t
=(407.9 - -1.5 - 650.5) / 5128.5
=-0.047

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 -2.67 suggests that the company will not be a manipulator.


Related Terms

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


Historical Data

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.

Fortune Brands Home & Security Inc Annual Data

Dec09Dec10Dec11Dec12Dec13Dec14Dec15Dec16
DSRI 0.89851.1710.89321.05130.95991.0066
GMI 1.09130.9010.95021.02680.98590.9542
AQI 1.12750.92951.03390.9581.06241.0149
SGI 1.02940.94181.18141.08371.1411.0885
DEPI 0.96411.05471.02521.04580.99870.9913
SGAI 1.05141.02670.910.92730.97340.9908
LVGI 1.9480.88471.08551.2721.19221.1221
TATA -0.0576-0.0425-0.015-0.0264-0.0225-0.046
M-score -3.04-2.61-2.51-2.56-2.54-2.67

Fortune Brands Home & Security Inc Quarterly Data

Sep14Dec14Mar15Jun15Sep15Dec15Mar16Jun16Sep16Dec16
DSRI 0.93471.08750.92880.97060.90820.95990.94780.85920.91431.0066
GMI 1.00911.02461.02071.01141.01180.98590.9820.97260.95930.9542
AQI 0.94560.9580.95961.04131.04841.06241.05920.99381.03571.0149
SGI 1.10461.04761.0641.10381.14741.1411.16191.15541.11691.0885
DEPI 0.95191.04580.95371.00981.02620.99870.95980.91370.9370.9913
SGAI 0.91610.91770.93810.97590.96850.97340.9630.93620.95590.9908
LVGI 1.30141.2721.29561.40991.24541.19221.41821.091.08891.1221
TATA -0.0159-0.0264-0.0478-0.0412-0.0308-0.0225-0.0288-0.0318-0.0267-0.047
M-score -2.63-2.55-2.81-2.71-2.62-2.54-2.64-2.67-2.62-2.67
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