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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 10 years, the highest Beneish M-Score of Fabrinet was -1.85. The lowest was -3.20. And the median was -2.32.
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 Fabrinet 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 * 1.5944||+||0.528 * 0.9823||+||0.404 * 1.4238||+||0.892 * 0.8367||+||0.115 * 1.1718|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 1.2907||+||4.679 * -0.0324||-||0.327 * 1.1879|
|This Year (Jun15) TTM:||Last Year (Jun14) TTM:|
|Accounts Receivable was $135.0 Mil.|
Revenue was 0 + 189.453 + 188.353 + 189.325 = $567.1 Mil.
Gross Profit was 0 + 21.657 + 21.061 + 20.506 = $63.2 Mil.
Total Current Assets was $527.0 Mil.
Total Assets was $672.5 Mil.
Property, Plant and Equipment(Net PPE) was $140.7 Mil.
Depreciation, Depletion and Amortization(DDA) was $12.9 Mil.
Selling, General & Admin. Expense(SGA) was $29.9 Mil.
Total Current Liabilities was $181.0 Mil.
Long-Term Debt was $4.5 Mil.
Net Income was 0 + 10.845 + 8.726 + 11.036 = $30.6 Mil.
Non Operating Income was 0 + -0.162 + -0.051 + -0.003 = $-0.2 Mil.
Cash Flow from Operations was 12.148 + 9.88 + 14.768 + 15.833 = $52.6 Mil.
|Accounts Receivable was $101.2 Mil.
Revenue was 160.084 + 167.657 + 178.562 + 171.551 = $677.9 Mil.
Gross Profit was 17.775 + 17.283 + 20.53 + 18.645 = $74.2 Mil.
Total Current Assets was $464.5 Mil.
Total Assets was $564.6 Mil.
Property, Plant and Equipment(Net PPE) was $97.2 Mil.
Depreciation, Depletion and Amortization(DDA) was $10.7 Mil.
Selling, General & Admin. Expense(SGA) was $27.7 Mil.
Total Current Liabilities was $120.6 Mil.
Long-Term Debt was $10.5 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)|
|=||(134.952 / 567.131)||/||(101.168 / 677.854)|
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)|
|=||(21.657 / 677.854)||/||(0 / 567.131)|
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 - (527.039 + 140.654) / 672.503)||/||(1 - (464.477 + 97.244) / 564.557)|
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))|
|=||(10.658 / (10.658 + 97.244))||/||(12.947 / (12.947 + 140.654))|
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)|
|=||(29.874 / 567.131)||/||(27.664 / 677.854)|
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)|
|=||((4.5 + 181.048) / 672.503)||/||((10.5 + 120.629) / 564.557)|
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|
|=||(30.607 - -0.216||-||52.629)||/||672.503|
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.
Fabrinet has a M-score of -2.16 signals that the company is likely to 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
Fabrinet Annual Data
Fabrinet Quarterly Data