Finward Bancorp Beneish M-Score Calculation
The M-score was created by Professor Messod Beneish. Instead of measuring the bankruptcy risk (Altman Z-Score) or business trend (Piotroski 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 Finward Bancorp 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 * 1.3058 | + | 0.528 * 1 | + | 0.404 * 1.0012 | + | 0.892 * 0.8302 | + | 0.115 * 0.8227 |
| - | 0.172 * SGAI | + | 4.679 * TATA | - | 0.327 * LVGI |
| - | 0.172 * 1.1435 | + | 4.679 * -0.007509 | - | 0.327 * 0.6547 |
| = | -2.32 |
* For Operating Data section: All numbers are indicated by the unit behind each term and all currency related amount are in USD.
* For other sections: All numbers are in millions except for per share data, ratio, and percentage. All currency related amount are indicated in the company's associated stock exchange currency.
| This Year (Dec23) TTM: | Last Year (Dec22) TTM: |
Total Receivables was $8.05 Mil.
Revenue was 15.45 + 15.53 + 17.045 + 17.276 = $65.30 Mil.
Gross Profit was 15.45 + 15.53 + 17.045 + 17.276 = $65.30 Mil.
Total Current Assets was $0.00 Mil.
Total Assets was $2,108.28 Mil.
Property, Plant and Equipment(Net PPE) was $38.44 Mil.
Depreciation, Depletion and Amortization(DDA) was $7.16 Mil.
Selling, General, & Admin. Expense(SGA) was $30.50 Mil.
Total Current Liabilities was $0.00 Mil.
Long-Term Debt & Capital Lease Obligation was $80.00 Mil.
Net Income was 1.511 + 2.191 + 2.438 + 2.24 = $8.38 Mil.
Non Operating Income was 0 + 0 + 0 + 0 = $0.00 Mil.
Cash Flow from Operations was 1.839 + 5.225 + 13.196 + 3.951 = $24.21 Mil.
|
Total Receivables was $7.42 Mil.
Revenue was 19.648 + 20.137 + 20.194 + 18.679 = $78.66 Mil.
Gross Profit was 19.648 + 20.137 + 20.194 + 18.679 = $78.66 Mil.
Total Current Assets was $0.00 Mil.
Total Assets was $2,070.34 Mil.
Property, Plant and Equipment(Net PPE) was $40.21 Mil.
Depreciation, Depletion and Amortization(DDA) was $5.97 Mil.
Selling, General, & Admin. Expense(SGA) was $32.13 Mil.
Total Current Liabilities was $0.00 Mil.
Long-Term Debt & Capital Lease Obligation was $120.00 Mil.
|
1. DSRI = Days Sales in Receivables Index
Measured as the ratio of Revenue in Total 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) |
| = | (8.045 / 65.301) | / | (7.421 / 78.658) |
| = | 0.123199 | / | 0.094345 |
| | = | 1.3058 |
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) |
| = | (78.658 / 78.658) | / | (65.301 / 65.301) |
| = | 1 | / | 1 |
| | = | 1 |
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 Property, Plant and Equipment to Total Assets.
| AQI | = | (1 - (CurrentAssets_t + PPE_t) / TotalAssets_t) | / | (1 - (CurrentAssets_t-1 + PPE_t-1) / TotalAssets_t-1) |
| = | (1 - (0 + 38.436) / 2108.279) | / | (1 - (0 + 40.212) / 2070.339) |
| = | 0.981769 | / | 0.980577 |
| | = | 1.0012 |
4. SGI = Sales Growth Index
Ratio of Revenue 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 |
| = | 65.301 | / | 78.658 |
| | = | 0.8302 |
5. DEPI = Depreciation Index
Measured as the ratio of the rate of Depreciation, Depletion and Amortization 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)) |
| = | (5.968 / (5.968 + 40.212)) | / | (7.163 / (7.163 + 38.436)) |
| = | 0.129233 | / | 0.157087 |
| | = | 0.8227 |
Note: If the Depreciation, Depletion and Amortization data is not available, we assume that the depreciation rate is constant and set the Depreciation Index to 1.
6. SGAI = Sales, General and Administrative expenses Index
The ratio of Selling, General, & Admin. Expense(SGA) to Sales 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) |
| = | (30.498 / 65.301) | / | (32.125 / 78.658) |
| = | 0.467037 | / | 0.408414 |
| | = | 1.1435 |
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 in leverage
| LVGI | = | ((LTD_t + CurrentLiabilities_t) / TotalAssets_t) | / | ((LTD_t-1 + CurrentLiabilities_t-1) / TotalAssets_t-1) |
| = | ((80 + 0) / 2108.279) | / | ((120 + 0) / 2070.339) |
| = | 0.037946 | / | 0.057962 |
| | = | 0.6547 |
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 |
| = | (8.38 - 0 | - | 24.211) | / | 2108.279 |
| | = | -0.007509 |
An M-Score of equal or less than -1.78 suggests that the company is unlikely to be a manipulator. An M-Score of greater than -1.78 signals that the company is likely to be a manipulator.
Finward Bancorp has a M-score of -2.32 suggests that the company is unlikely to be a manipulator.
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