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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 -3.85. 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 * 1.0169||+||0.528 * 0.9585||+||0.404 * 1.006||+||0.892 * 0.9683||+||0.115 * 0.9273|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 0.9421||+||4.679 * 0.0136||-||0.327 * 1.0359|
|This Year (Jun15) TTM:||Last Year (Jun14) TTM:|
|Accounts Receivable was $539 Mil.|
Revenue was 628.2 + 588.7 + 660 + 657.1 = $2,534 Mil.
Gross Profit was 213.9 + 199 + 216.9 + 219.9 = $850 Mil.
Total Current Assets was $1,633 Mil.
Total Assets was $3,576 Mil.
Property, Plant and Equipment(Net PPE) was $421 Mil.
Depreciation, Depletion and Amortization(DDA) was $88 Mil.
Selling, General & Admin. Expense(SGA) was $483 Mil.
Total Current Liabilities was $816 Mil.
Long-Term Debt was $0 Mil.
Net Income was 142.3 + 42.1 + 33.7 + 80.3 = $298 Mil.
Non Operating Income was -0.6 + 0 + 1.7 + -1.4 = $-0 Mil.
Cash Flow from Operations was 81.3 + 8.2 + 112.8 + 47.6 = $250 Mil.
|Accounts Receivable was $547 Mil.
Revenue was 663 + 674.5 + 645.5 + 634 = $2,617 Mil.
Gross Profit was 214.8 + 214.8 + 208.6 + 202.9 = $841 Mil.
Total Current Assets was $1,758 Mil.
Total Assets was $3,813 Mil.
Property, Plant and Equipment(Net PPE) was $443 Mil.
Depreciation, Depletion and Amortization(DDA) was $85 Mil.
Selling, General & Admin. Expense(SGA) was $530 Mil.
Total Current Liabilities was $840 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)|
|=||(538.7 / 2534)||/||(547.1 / 2617)|
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)|
|=||(199 / 2617)||/||(213.9 / 2534)|
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 - (1633.4 + 421.4) / 3575.7)||/||(1 - (1757.6 + 443) / 3812.5)|
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))|
|=||(84.5 / (84.5 + 443))||/||(88 / (88 + 421.4))|
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)|
|=||(483.4 / 2534)||/||(529.9 / 2617)|
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 + 816) / 3575.7)||/||((0 + 839.9) / 3812.5)|
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|
|=||(298.4 - -0.3||-||249.9)||/||3575.7|
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 -2.46 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
ITT Corp Annual Data
ITT Corp Quarterly Data