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GuruFocus has detected 6 Warning Signs with W.W. Grainger Inc $GWW.
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W.W. Grainger Inc (NYSE:GWW)
Beneish M-Score
-2.82 (As of Today)

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.

W.W. Grainger Inc has a M-score of -2.82 suggests that the company is not a manipulator.

GWW' s Beneish M-Score Range Over the Past 10 Years
Min: -3.26   Max: -1.9
Current: -2.82

-3.26
-1.9

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.


Definition

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
=-2.82

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.

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

Measured as the ratio of days’ sales in 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)
=(1223.096 / 10137.204) / (1209.641 / 9973.384)
=0.12065418 / 0.12128692
=0.9948

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)
=(4231.429 / 9973.384) / (4114.556 / 10137.204)
=0.42427214 / 0.40588667
=1.0453

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 plant, property and equipment to total assets.

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)
=0.22007718 / 0.23522186
=0.9356

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.

SGI=Sales_t / Sales_t-1
=Revenue_t / Revenue_t-1
=10137.204 / 9973.384
=1.0164

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))
=0.13739507 / 0.14903866
=0.9219

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)
=0.29545228 / 0.29389323
=1.0053

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)
=0.60936002 / 0.54234907
=1.1236

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
=(605.928 - -34.824 - 1002.976) / 5694.307
=-0.0636

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.


Related Terms

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


Historical Data

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.

W.W. Grainger Inc Annual Data

Dec07Dec08Dec09Dec10Dec11Dec12Dec13Dec14Dec15Dec16
DSRI 0.97510.91641.16721.05761.03570.95471.11141.00841.03040.9948
GMI 0.98630.98960.98160.9980.96290.99320.99831.01241.02041.0453
AQI 1.04440.93561.37241.04531.13220.94880.99550.97491.25380.9356
SGI 1.09081.06730.90831.15431.12481.10791.05451.05591.00081.0164
DEPI 0.99571.00150.97340.99691.08981.01110.93840.95650.98930.9219
SGAI 0.99770.98181.05080.96131.01891.02250.96690.98960.9871.0053
LVGI 1.15071.32340.91651.01371.00330.93091.01021.01131.72081.1236
TATA -0.0164-0.0156-0.0943-0.022-0.0199-0.0252-0.0361-0.029-0.0348-0.0636
M-score -2.54-2.70-2.69-2.37-2.39-2.55-2.51-2.57-2.74-2.82

W.W. Grainger Inc Quarterly Data

Sep14Dec14Mar15Jun15Sep15Dec15Mar16Jun16Sep16Dec16
DSRI 1.0781.00840.98420.981.02751.03041.08651.0891.01310.9948
GMI 1.01741.01241.01321.01161.01351.02041.03791.0471.05231.0453
AQI 0.94650.97490.93560.86461.19141.25381.26261.35340.97920.9356
SGI 1.05861.05591.04991.03811.01781.00081.00211.00461.01391.0164
DEPI 0.94960.95650.94910.93680.98350.98931.01981.00980.97890.9219
SGAI 0.98760.98960.99070.97950.9960.9870.9740.98520.97361.0053
LVGI 0.99851.01131.04481.40081.78441.72081.71081.38931.12171.1236
TATA -0.0183-0.029-0.028-0.0308-0.0419-0.0348-0.0372-0.0381-0.0352-0.0636
M-score -2.46-2.57-2.62-2.79-2.81-2.74-2.67-2.53-2.64-2.82
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