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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 11 years, the highest Beneish M-Score of Fabrinet was -1.19. The lowest was -3.43. And the median was -2.27.
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 * 1.1158||+||0.528 * 0.9559||+||0.404 * 1.5059||+||0.892 * 1.3643||+||0.115 * 1.0857|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 0.8989||+||4.679 * 0.0342||-||0.327 * 1.182|
|This Year (Sep16) TTM:||Last Year (Sep15) TTM:|
|Accounts Receivable was $213 Mil.|
Revenue was 332.043 + 276.388 + 250.888 + 233.038 = $1,092 Mil.
Gross Profit was 39.608 + 33.842 + 31.177 + 28.493 = $133 Mil.
Total Current Assets was $680 Mil.
Total Assets was $901 Mil.
Property, Plant and Equipment(Net PPE) was $206 Mil.
Depreciation, Depletion and Amortization(DDA) was $18 Mil.
Selling, General & Admin. Expense(SGA) was $54 Mil.
Total Current Liabilities was $269 Mil.
Long-Term Debt was $34 Mil.
Net Income was 22.766 + 19.669 + 20.822 + 19.803 = $83 Mil.
Non Operating Income was 1.8 + -0.56 + 3.137 + 6.272 = $11 Mil.
Cash Flow from Operations was -1.002 + 5.732 + 17.652 + 19.165 = $42 Mil.
|Accounts Receivable was $140 Mil.
Revenue was 216.433 + 206.456 + 189.453 + 188.353 = $801 Mil.
Gross Profit was 26.011 + 24.549 + 21.657 + 21.061 = $93 Mil.
Total Current Assets was $536 Mil.
Total Assets was $688 Mil.
Property, Plant and Equipment(Net PPE) was $144 Mil.
Depreciation, Depletion and Amortization(DDA) was $14 Mil.
Selling, General & Admin. Expense(SGA) was $44 Mil.
Total Current Liabilities was $193 Mil.
Long-Term Debt was $3 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)|
|=||(212.684 / 1092.357)||/||(139.715 / 800.695)|
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)|
|=||(93.278 / 800.695)||/||(133.12 / 1092.357)|
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 - (680.451 + 205.845) / 901.303)||/||(1 - (536.443 + 144.148) / 688.2)|
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))|
|=||(14.102 / (14.102 + 144.148))||/||(18.407 / (18.407 + 205.845))|
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)|
|=||(53.685 / 1092.357)||/||(43.776 / 800.695)|
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)|
|=||((34.315 + 269.243) / 901.303)||/||((3 + 193.102) / 688.2)|
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|
|=||(83.06 - 10.649||-||41.547)||/||901.303|
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 -1.74 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