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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 1.65. The lowest was -3.07. 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 * 0.9578||+||0.528 * 1.0327||+||0.404 * 1.0066||+||0.892 * 0.9677||+||0.115 * 0.9369|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 1.0394||+||4.679 * -0.0152||-||0.327 * 0.9396|
|This Year (Dec16) TTM:||Last Year (Dec15) TTM:|
|Accounts Receivable was $514 Mil.|
Revenue was 588.4 + 581.7 + 626.2 + 609.1 = $2,405 Mil.
Gross Profit was 173.4 + 183.9 + 205.6 + 195.3 = $758 Mil.
Total Current Assets was $1,402 Mil.
Total Assets was $3,602 Mil.
Property, Plant and Equipment(Net PPE) was $465 Mil.
Depreciation, Depletion and Amortization(DDA) was $102 Mil.
Selling, General & Admin. Expense(SGA) was $444 Mil.
Total Current Liabilities was $866 Mil.
Long-Term Debt was $0 Mil.
Net Income was 25.8 + 90.1 + 32.8 + 37.4 = $186 Mil.
Non Operating Income was -1 + 0 + 1 + 0 = $0 Mil.
Cash Flow from Operations was 94 + 75.1 + 65.9 + 5.7 = $241 Mil.
|Accounts Receivable was $554 Mil.
Revenue was 666.8 + 601.9 + 628.2 + 588.7 = $2,486 Mil.
Gross Profit was 201.3 + 194.9 + 213.9 + 199 = $809 Mil.
Total Current Assets was $1,498 Mil.
Total Assets was $3,724 Mil.
Property, Plant and Equipment(Net PPE) was $444 Mil.
Depreciation, Depletion and Amortization(DDA) was $90 Mil.
Selling, General & Admin. Expense(SGA) was $442 Mil.
Total Current Liabilities was $953 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)|
|=||(513.5 / 2405.4)||/||(554 / 2485.6)|
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)|
|=||(809.1 / 2485.6)||/||(758.2 / 2405.4)|
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 - (1401.8 + 464.5) / 3601.7)||/||(1 - (1497.7 + 443.5) / 3723.6)|
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))|
|=||(90 / (90 + 443.5))||/||(102 / (102 + 464.5))|
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)|
|=||(444.1 / 2405.4)||/||(441.5 / 2485.6)|
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 + 866.2) / 3601.7)||/||((0 + 953.1) / 3723.6)|
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|
|=||(186.1 - 0||-||240.7)||/||3601.7|
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 -2.59 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