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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.
ITT Corp has a M-score of -1.87 signals that the company is a manipulator.
During the past 13 years, the highest Beneish M-Score of ITT Corp was 0.13. The lowest was -4.52. And the median was -2.49.
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 * 1.0956||+||0.528 * 0.9762||+||0.404 * 0.9967||+||0.892 * 1.1374||+||0.115 * 1.1357|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 0.8892||+||4.679 * 0.0722||-||0.327 * 0.8812|
|This Year (Jun14) TTM:||Last Year (Jun13) TTM:|
|Accounts Receivable was $622 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 $498 Mil.
Total Current Liabilities was $840 Mil.
Long-Term Debt was $0 Mil.
Net Income was 38.3 + 32.2 + 11.2 + 430.7 = $512 Mil.
Non Operating Income was 0 + -2.2 + -1.8 + 0 = $-4 Mil.
Cash Flow from Operations was 93.4 + -13.6 + 146.4 + 15.1 = $241 Mil.
|Accounts Receivable was $499 Mil.
Revenue was 609.2 + 608.2 + 527.5 + 555.9 = $2,301 Mil.
Gross Profit was 197.8 + 190.5 + 164.8 + 168.8 = $722 Mil.
Total Current Assets was $1,571 Mil.
Total Assets was $3,366 Mil.
Property, Plant and Equipment(Net PPE) was $367 Mil.
Depreciation, Depletion and Amortization(DDA) was $82 Mil.
Selling, General & Admin. Expense(SGA) was $492 Mil.
Total Current Liabilities was $842 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)|
|=||(622.2 / 2617)||/||(499.3 / 2300.8)|
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)|
|=||(214.8 / 2300.8)||/||(214.8 / 2617)|
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 - (1757.6 + 443) / 3812.5)||/||(1 - (1570.6 + 367.4) / 3365.8)|
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))|
|=||(81.7 / (81.7 + 367.4))||/||(84.5 / (84.5 + 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)|
|=||(498 / 2617)||/||(492.4 / 2300.8)|
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 + 839.9) / 3812.5)||/||((0 + 841.5) / 3365.8)|
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|
|=||(512.4 - -4||-||241.3)||/||3812.5|
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 -1.87 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