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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 FirstEnergy Corp was -1.19. The lowest was -3.25. And the median was -2.77.
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 FirstEnergy Corp 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 * 0.8416||+||0.528 * 0.9327||+||0.404 * 0.9507||+||0.892 * 1.0158||+||0.115 * 0.9181|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 0.8116||+||4.679 * -0.0538||-||0.327 * 0.9918|
|This Year (Mar16) TTM:||Last Year (Mar15) TTM:|
|Accounts Receivable was $1,432 Mil.|
Revenue was 3869 + 3541 + 4123 + 3465 = $14,998 Mil.
Gross Profit was 2364 + 2057 + 2432 + 2093 = $8,946 Mil.
Total Current Assets was $3,230 Mil.
Total Assets was $52,695 Mil.
Property, Plant and Equipment(Net PPE) was $37,644 Mil.
Depreciation, Depletion and Amortization(DDA) was $1,866 Mil.
Selling, General & Admin. Expense(SGA) was $3,852 Mil.
Total Current Liabilities was $6,389 Mil.
Long-Term Debt was $18,878 Mil.
Net Income was 328 + -226 + 395 + 187 = $684 Mil.
Non Operating Income was 28 + -370 + -28 + -3 = $-373 Mil.
Cash Flow from Operations was 638 + 1130 + 1327 + 797 = $3,892 Mil.
|Accounts Receivable was $1,675 Mil.
Revenue was 3897 + 3483 + 3888 + 3496 = $14,764 Mil.
Gross Profit was 2271 + 1924 + 2156 + 1863 = $8,214 Mil.
Total Current Assets was $4,011 Mil.
Total Assets was $52,521 Mil.
Property, Plant and Equipment(Net PPE) was $36,117 Mil.
Depreciation, Depletion and Amortization(DDA) was $1,637 Mil.
Selling, General & Admin. Expense(SGA) was $4,672 Mil.
Total Current Liabilities was $6,262 Mil.
Long-Term Debt was $19,130 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)|
|=||(1432 / 14998)||/||(1675 / 14764)|
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)|
|=||(8214 / 14764)||/||(8946 / 14998)|
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 - (3230 + 37644) / 52695)||/||(1 - (4011 + 36117) / 52521)|
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))|
|=||(1637 / (1637 + 36117))||/||(1866 / (1866 + 37644))|
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)|
|=||(3852 / 14998)||/||(4672 / 14764)|
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)|
|=||((18878 + 6389) / 52695)||/||((19130 + 6262) / 52521)|
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|
|=||(684 - -373||-||3892)||/||52695|
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.
FirstEnergy Corp has a M-score of -2.89 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
FirstEnergy Corp Annual Data
FirstEnergy Corp Quarterly Data