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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 * 0.8981||+||0.528 * 0.971||+||0.404 * 0.9813||+||0.892 * 1.0022||+||0.115 * 0.93|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 0.933||+||4.679 * -0.0202||-||0.327 * 1.0596|
|This Year (Mar15) TTM:||Last Year (Mar14) TTM:|
|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.
Net Income was 42.1 + 33.7 + 80.3 + 38.3 = $194 Mil.
Non Operating Income was 0 + 1.7 + -1.4 + 0 = $0 Mil.
Cash Flow from Operations was 8.2 + 112.8 + 52.1 + 93 = $266 Mil.
|Accounts Receivable was $570 Mil.
Revenue was 674.5 + 645.5 + 634 + 609.2 = $2,563 Mil.
Gross Profit was 214.8 + 208.6 + 202.9 + 197.8 = $824 Mil.
Total Current Assets was $1,714 Mil.
Total Assets was $3,784 Mil.
Property, Plant and Equipment(Net PPE) was $435 Mil.
Depreciation, Depletion and Amortization(DDA) was $84 Mil.
Selling, General & Admin. Expense(SGA) was $528 Mil.
Total Current Liabilities was $834 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)|
|=||(513.3 / 2568.8)||/||(570.3 / 2563.2)|
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)|
|=||(216.9 / 2563.2)||/||(199 / 2568.8)|
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 - (1638.7 + 419.3) / 3572.6)||/||(1 - (1714.4 + 434.6) / 3783.7)|
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))|
|=||(83.5 / (83.5 + 434.6))||/||(87.9 / (87.9 + 419.3))|
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)|
|=||(493.9 / 2568.8)||/||(528.2 / 2563.2)|
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 + 834.5) / 3572.6)||/||((0 + 834.1) / 3783.7)|
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|
|=||(194.4 - 0.3||-||266.1)||/||3572.6|
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 -2.71 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