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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 -1.89. 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 * 1.0275||+||0.528 * 1.0135||+||0.404 * 1.1914||+||0.892 * 1.0178||+||0.115 * 0.9835|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 0.996||+||4.679 * -0.0419||-||0.327 * 1.7844|
|This Year (Sep15) TTM:||Last Year (Sep14) TTM:|
|Accounts Receivable was $1,291 Mil.|
Revenue was 2532.9 + 2522.565 + 2439.661 + 2510.959 = $10,006 Mil.
Gross Profit was 1061.879 + 1073.432 + 1093.743 + 1054.801 = $4,284 Mil.
Total Current Assets was $3,105 Mil.
Total Assets was $5,807 Mil.
Property, Plant and Equipment(Net PPE) was $1,373 Mil.
Depreciation, Depletion and Amortization(DDA) was $225 Mil.
Selling, General & Admin. Expense(SGA) was $2,969 Mil.
Total Current Liabilities was $1,549 Mil.
Long-Term Debt was $1,451 Mil.
Net Income was 192.201 + 220.548 + 211.015 + 148.839 = $773 Mil.
Non Operating Income was -7.847 + -4.124 + -2.164 + -3.089 = $-17 Mil.
Cash Flow from Operations was 366.425 + 213.296 + 156.209 + 296.981 = $1,033 Mil.
|Accounts Receivable was $1,235 Mil.
Revenue was 2562.263 + 2506.104 + 2385.627 + 2377.232 = $9,831 Mil.
Gross Profit was 1102.784 + 1080.686 + 1075.971 + 1006.397 = $4,266 Mil.
Total Current Assets was $3,044 Mil.
Total Assets was $5,326 Mil.
Property, Plant and Equipment(Net PPE) was $1,259 Mil.
Depreciation, Depletion and Amortization(DDA) was $202 Mil.
Selling, General & Admin. Expense(SGA) was $2,928 Mil.
Total Current Liabilities was $1,157 Mil.
Long-Term Debt was $385 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)|
|=||(1291.365 / 10006.085)||/||(1234.884 / 9831.226)|
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)|
|=||(1073.432 / 9831.226)||/||(1061.879 / 10006.085)|
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 - (3104.686 + 1372.992) / 5807.153)||/||(1 - (3043.663 + 1259.264) / 5326.416)|
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))|
|=||(202.2 / (202.2 + 1259.264))||/||(224.775 / (224.775 + 1372.992))|
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)|
|=||(2968.648 / 10006.085)||/||(2928.472 / 9831.226)|
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)|
|=||((1450.624 + 1549.197) / 5807.153)||/||((385.191 + 1156.783) / 5326.416)|
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|
|=||(772.603 - -17.224||-||1032.911)||/||5807.153|
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 -2.81 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