FCE.B- (USA)
Forest City Enterprises, Inc.
This page has been successfully added into your Bookmark.
Bookmark of this page has been deleted.
This feature is only available for Members, please Sign Up for FREE membership.
If you have already signed up, please Log In
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 is based on a combination of the following eight different indices:
DSRI = Days Sales in Receivables Index = (Receivablest/Salest/(Receivablest-1/Salest-1)
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.
GMI = Gross Margin Index= Gross_Margin_t-1/ Gross_Margin_t
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.
AQI = Asset Quality Index=(1-(CurrentAsset_t+PPE_t)/TotalAsset_t))/ (1-(CurrentAsset_t-1+PPE_t)/TotalAsset_t-1))
Asset quality is measured as the ratio of non-current assets other than plant, property and equipment to total assets.
AQI is the ratio of asset quality in year t to year t-1.
SGI = Sales Growth Index=Sales_t/Sales_t-1
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.
DEPI = Depreciation Index=(Depreciation_t-1/(Depreciaton_t-1+PPE_t-1))/ =(Depreciation_t/(Depreciaton_t+PPE_t))
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.
SGAI = Sales, General and Administrative expenses Index=(SGA_t/Sales_t)/(SGA_t-1/Sales_t-1)
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.
LVGI = Leverage Index=((LTD_t+CurrentLiabilities_t)/TotalAssets_t)/ =((LTD_t-1+CurrentLiabilities_t-1)/TotalAssets_t-1)
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
TATA - Total Accruals to Total Assets= (Income from Continuing Operationst - Cash Flows from Operationst) / Total Assetst
Total accruals calculated as the change in working capital accounts other than cash less depreciation.
M = -4.84 + 0.92*DSRI + 0.528*GMI + 0.404*AQI + 0.892*SGI + 0.115*DEPI - 0.172*SGAI + 4.679*TATA - 0.327*LVGI
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.
European Shorting
Feedback
My Portfolios
Browse Gurus
Bookmark
Add to Portfolio
Get Email Alerts
RSS Update
Company Website
SEC Reports
RSS