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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 * 1.0601||+||0.528 * 0.9769||+||0.404 * 1.0172||+||0.892 * 0.9389||+||0.115 * 0.9398|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 0.9374||+||4.679 * 0.0229||-||0.327 * 0.9374|
|This Year (Sep15) TTM:||Last Year (Sep14) TTM:|
|Accounts Receivable was $536 Mil.|
Revenue was 601.9 + 628.2 + 588.7 + 660 = $2,479 Mil.
Gross Profit was 194.9 + 213.9 + 199 + 216.9 = $825 Mil.
Total Current Assets was $1,571 Mil.
Total Assets was $3,478 Mil.
Property, Plant and Equipment(Net PPE) was $414 Mil.
Depreciation, Depletion and Amortization(DDA) was $87 Mil.
Selling, General & Admin. Expense(SGA) was $464 Mil.
Total Current Liabilities was $717 Mil.
Long-Term Debt was $0 Mil.
Net Income was 130.7 + 142.3 + 42.1 + 33.7 = $349 Mil.
Non Operating Income was 8 + -0.6 + 0 + 1.7 = $9 Mil.
Cash Flow from Operations was 57.6 + 81.3 + 8.2 + 112.8 = $260 Mil.
|Accounts Receivable was $538 Mil.
Revenue was 657.1 + 663 + 674.5 + 645.5 = $2,640 Mil.
Gross Profit was 219.9 + 214.8 + 214.8 + 208.6 = $858 Mil.
Total Current Assets was $1,710 Mil.
Total Assets was $3,707 Mil.
Property, Plant and Equipment(Net PPE) was $433 Mil.
Depreciation, Depletion and Amortization(DDA) was $85 Mil.
Selling, General & Admin. Expense(SGA) was $527 Mil.
Total Current Liabilities was $815 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)|
|=||(535.6 / 2478.8)||/||(538.1 / 2640.1)|
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)|
|=||(213.9 / 2640.1)||/||(194.9 / 2478.8)|
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 - (1571.1 + 414.4) / 3478.3)||/||(1 - (1709.6 + 433.2) / 3706.7)|
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))|
|=||(84.6 / (84.6 + 433.2))||/||(87.2 / (87.2 + 414.4))|
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)|
|=||(464.1 / 2478.8)||/||(527.3 / 2640.1)|
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 + 717.2) / 3478.3)||/||((0 + 815.3) / 3706.7)|
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|
|=||(348.8 - 9.1||-||259.9)||/||3478.3|
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 -2.35 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