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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 -2.54.
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 * 0.9842||+||0.528 * 1.0132||+||0.404 * 0.9356||+||0.892 * 1.0499||+||0.115 * 0.9491|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 0.9907||+||4.679 * -0.028||-||0.327 * 1.0448|
|This Year (Mar15) TTM:||Last Year (Mar14) TTM:|
|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.
Net Income was 211.015 + 148.839 + 230.322 + 205.915 = $796 Mil.
Non Operating Income was -2.164 + -3.089 + -1.131 + 0.018 = $-6 Mil.
Cash Flow from Operations was 156.209 + 296.981 + 334.367 + 160.948 = $949 Mil.
|Accounts Receivable was $1,160 Mil.
Revenue was 2385.627 + 2377.232 + 2398.53 + 2381.561 = $9,543 Mil.
Gross Profit was 1075.971 + 1006.397 + 1051.366 + 1046.984 = $4,181 Mil.
Total Current Assets was $2,996 Mil.
Total Assets was $5,234 Mil.
Property, Plant and Equipment(Net PPE) was $1,211 Mil.
Depreciation, Depletion and Amortization(DDA) was $187 Mil.
Selling, General & Admin. Expense(SGA) was $2,873 Mil.
Total Current Liabilities was $1,166 Mil.
Long-Term Debt was $438 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)|
|=||(1198.153 / 10018.987)||/||(1159.556 / 9542.95)|
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)|
|=||(1054.801 / 9542.95)||/||(1093.743 / 10018.987)|
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 - (2946.641 + 1306.962) / 5210.972)||/||(1 - (2995.664 + 1210.778) / 5234.229)|
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))|
|=||(187.444 / (187.444 + 1210.778))||/||(214.961 / (214.961 + 1306.962))|
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)|
|=||(2987.989 / 10018.987)||/||(2872.829 / 9542.95)|
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)|
|=||((371.07 + 1297.545) / 5210.972)||/||((438.068 + 1166.137) / 5234.229)|
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|
|=||(796.091 - -6.366||-||948.505)||/||5210.972|
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 -2.62 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