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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 ITT Corp was 4.33. The lowest was -3.23. And the median was -2.42.
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 ITT Corp 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 * 1.1722||+||0.528 * 1.0303||+||0.404 * 1.1146||+||0.892 * 0.9756||+||0.115 * 0.9849|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 0.9265||+||4.679 * 0.0297||-||0.327 * 1.0722|
* All numbers are in millions except for per share data and ratio. All numbers are in their own currency.
|This Year (Mar16) TTM:||Last Year (Mar15) TTM:|
|Accounts Receivable was $587 Mil.|
Revenue was 609.1 + 666.8 + 601.9 + 628.2 = $2,506 Mil.
Gross Profit was 195.3 + 201.3 + 194.9 + 213.9 = $805 Mil.
Total Current Assets was $1,566 Mil.
Total Assets was $3,809 Mil.
Property, Plant and Equipment(Net PPE) was $443 Mil.
Depreciation, Depletion and Amortization(DDA) was $95 Mil.
Selling, General & Admin. Expense(SGA) was $446 Mil.
Total Current Liabilities was $954 Mil.
Long-Term Debt was $0 Mil.
Net Income was 37.4 + 36.7 + 130.7 + 142.3 = $347 Mil.
Non Operating Income was 0 + -0.6 + 8 + -0.6 = $7 Mil.
Cash Flow from Operations was 5.7 + 82.6 + 57.6 + 81.3 = $227 Mil.
|Accounts Receivable was $513 Mil.
Revenue was 588.7 + 660 + 657.1 + 663 = $2,569 Mil.
Gross Profit was 199 + 216.9 + 219.9 + 214.8 = $851 Mil.
Total Current Assets was $1,639 Mil.
Total Assets was $3,573 Mil.
Property, Plant and Equipment(Net PPE) was $419 Mil.
Depreciation, Depletion and Amortization(DDA) was $88 Mil.
Selling, General & Admin. Expense(SGA) was $494 Mil.
Total Current Liabilities was $835 Mil.
Long-Term Debt was $0 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)|
|=||(587 / 2506)||/||(513.3 / 2568.8)|
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)|
|=||(850.6 / 2568.8)||/||(805.4 / 2506)|
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 - (1566.2 + 443) / 3809.2)||/||(1 - (1638.7 + 419.3) / 3572.6)|
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))|
|=||(87.9 / (87.9 + 419.3))||/||(94.6 / (94.6 + 443))|
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)|
|=||(446.4 / 2506)||/||(493.9 / 2568.8)|
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)|
|=||((0 + 954) / 3809.2)||/||((0 + 834.5) / 3572.6)|
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|
|=||(347.1 - 6.8||-||227.2)||/||3809.2|
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.
ITT Corp has a M-score of -2.15 signals that the company is likely to 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
ITT Corp Annual Data
ITT Corp Quarterly Data