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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 -2.05 signals that the company is a manipulator.
During the past 13 years, the highest Beneish M-Score of ITT Corp was 1.65. The lowest was -3.67. 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 * 1.0065||+||0.528 * 0.9532||+||0.404 * 1.0135||+||0.892 * 1.1208||+||0.115 * 0.9451|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 1.1086||+||4.679 * 0.0719||-||0.327 * 0.936|
|This Year (Dec13) TTM:||Last Year (Dec12) TTM:|
|Accounts Receivable was $497 Mil.|
Revenue was 645.5 + 634 + 609.2 + 608.2 = $2,497 Mil.
Gross Profit was 208.6 + 202.9 + 197.8 + 190.5 = $800 Mil.
Total Current Assets was $1,666 Mil.
Total Assets was $3,740 Mil.
Property, Plant and Equipment(Net PPE) was $426 Mil.
Depreciation, Depletion and Amortization(DDA) was $87 Mil.
Selling, General & Admin. Expense(SGA) was $500 Mil.
Total Current Liabilities was $833 Mil.
Long-Term Debt was $0 Mil.
Net Income was 11.2 + 430.7 + 25.8 + 20.8 = $489 Mil.
Non Operating Income was -1.8 + 0 + 0 + -5.4 = $-7 Mil.
Cash Flow from Operations was 146.4 + 15.1 + 77.8 + -12.7 = $227 Mil.
|Accounts Receivable was $440 Mil.
Revenue was 554.3 + 547.5 + 557.9 + 568.1 = $2,228 Mil.
Gross Profit was 173.4 + 166.2 + 170.4 + 170.2 = $680 Mil.
Total Current Assets was $1,540 Mil.
Total Assets was $3,386 Mil.
Property, Plant and Equipment(Net PPE) was $373 Mil.
Depreciation, Depletion and Amortization(DDA) was $71 Mil.
Selling, General & Admin. Expense(SGA) was $403 Mil.
Total Current Liabilities was $805 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)|
|=||(496.7 / 2496.9)||/||(440.3 / 2227.8)|
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)|
|=||(202.9 / 2227.8)||/||(208.6 / 2496.9)|
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 - (1665.5 + 426.2) / 3740.2)||/||(1 - (1540.4 + 373.1) / 3386.1)|
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))|
|=||(71.1 / (71.1 + 373.1))||/||(86.9 / (86.9 + 426.2))|
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)|
|=||(500.1 / 2496.9)||/||(402.5 / 2227.8)|
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 + 832.6) / 3740.2)||/||((0 + 805.3) / 3386.1)|
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|
|=||(488.5 - -7.2||-||226.6)||/||3740.2|
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 -2.05 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