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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 W.W. Grainger Inc was -1.90. The lowest was -3.28. And the median was -2.55.
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 W.W. Grainger Inc 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 * 1.0865||+||0.528 * 1.0379||+||0.404 * 1.2626||+||0.892 * 1.0021||+||0.115 * 1.0198|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 0.974||+||4.679 * -0.0372||-||0.327 * 1.7108|
|This Year (Mar16) TTM:||Last Year (Mar15) TTM:|
|Accounts Receivable was $1,305 Mil.|
Revenue was 2506.538 + 2478.258 + 2532.9 + 2522.565 = $10,040 Mil.
Gross Profit was 1045.053 + 1002.375 + 1061.879 + 1073.432 = $4,183 Mil.
Total Current Assets was $3,139 Mil.
Total Assets was $5,965 Mil.
Property, Plant and Equipment(Net PPE) was $1,442 Mil.
Depreciation, Depletion and Amortization(DDA) was $232 Mil.
Selling, General & Admin. Expense(SGA) was $2,917 Mil.
Total Current Liabilities was $1,880 Mil.
Long-Term Debt was $1,387 Mil.
Net Income was 186.713 + 145.232 + 192.201 + 220.548 = $745 Mil.
Non Operating Income was -5.948 + -3.073 + -7.847 + -4.124 = $-21 Mil.
Cash Flow from Operations was 153.731 + 253.974 + 366.425 + 213.296 = $987 Mil.
|Accounts Receivable was $1,198 Mil.
Revenue was 2439.661 + 2510.959 + 2562.263 + 2506.104 = $10,019 Mil.
Gross Profit was 1093.743 + 1054.801 + 1102.784 + 1080.686 = $4,332 Mil.
Total Current Assets was $2,947 Mil.
Total Assets was $5,211 Mil.
Property, Plant and Equipment(Net PPE) was $1,307 Mil.
Depreciation, Depletion and Amortization(DDA) was $215 Mil.
Selling, General & Admin. Expense(SGA) was $2,988 Mil.
Total Current Liabilities was $1,298 Mil.
Long-Term Debt was $371 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)|
|=||(1304.56 / 10040.261)||/||(1198.153 / 10018.987)|
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)|
|=||(4332.014 / 10018.987)||/||(4182.739 / 10040.261)|
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 - (3138.961 + 1442.191) / 5964.839)||/||(1 - (2946.641 + 1306.962) / 5210.972)|
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))|
|=||(214.961 / (214.961 + 1306.962))||/||(231.85 / (231.85 + 1442.191))|
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)|
|=||(2916.575 / 10040.261)||/||(2987.989 / 10018.987)|
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)|
|=||((1387.124 + 1880.44) / 5964.839)||/||((371.07 + 1297.545) / 5210.972)|
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|
|=||(744.694 - -20.992||-||987.426)||/||5964.839|
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.
W.W. Grainger Inc has a M-score of -2.67 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
W.W. Grainger Inc Annual Data
W.W. Grainger Inc Quarterly Data