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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 -3.26. And the median was -2.61.
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 * 0.9948||+||0.528 * 1.0453||+||0.404 * 0.9356||+||0.892 * 1.0164||+||0.115 * 0.9219|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 1.0053||+||4.679 * -0.0636||-||0.327 * 1.1236|
|This Year (Dec16) TTM:||Last Year (Dec15) TTM:|
|Accounts Receivable was $1,223 Mil.|
Revenue was 2470.71 + 2596.288 + 2563.668 + 2506.538 = $10,137 Mil.
Gross Profit was 989.692 + 1039.752 + 1040.059 + 1045.053 = $4,115 Mil.
Total Current Assets was $3,020 Mil.
Total Assets was $5,694 Mil.
Property, Plant and Equipment(Net PPE) was $1,421 Mil.
Depreciation, Depletion and Amortization(DDA) was $249 Mil.
Selling, General & Admin. Expense(SGA) was $2,995 Mil.
Total Current Liabilities was $1,629 Mil.
Long-Term Debt was $1,841 Mil.
Net Income was 60.666 + 185.873 + 172.676 + 186.713 = $606 Mil.
Non Operating Income was -11.386 + -11.525 + -5.965 + -5.948 = $-35 Mil.
Cash Flow from Operations was 332.593 + 343.994 + 172.658 + 153.731 = $1,003 Mil.
|Accounts Receivable was $1,210 Mil.
Revenue was 2478.258 + 2532.9 + 2522.565 + 2439.661 = $9,973 Mil.
Gross Profit was 1002.375 + 1061.879 + 1073.432 + 1093.743 = $4,231 Mil.
Total Current Assets was $3,049 Mil.
Total Assets was $5,858 Mil.
Property, Plant and Equipment(Net PPE) was $1,431 Mil.
Depreciation, Depletion and Amortization(DDA) was $228 Mil.
Selling, General & Admin. Expense(SGA) was $2,931 Mil.
Total Current Liabilities was $1,789 Mil.
Long-Term Debt was $1,388 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)|
|=||(1223.096 / 10137.204)||/||(1209.641 / 9973.384)|
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)|
|=||(4231.429 / 9973.384)||/||(4114.556 / 10137.204)|
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 - (3020.229 + 1420.891) / 5694.307)||/||(1 - (3048.642 + 1431.241) / 5857.755)|
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))|
|=||(227.967 / (227.967 + 1431.241))||/||(248.857 / (248.857 + 1420.891))|
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)|
|=||(2995.06 / 10137.204)||/||(2931.11 / 9973.384)|
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)|
|=||((1840.946 + 1628.937) / 5694.307)||/||((1388.414 + 1788.534) / 5857.755)|
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|
|=||(605.928 - -34.824||-||1002.976)||/||5694.307|
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 -2.82 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