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GuruFocus has detected 5 Warning Signs with Kratos Defense & Security Solutions Inc $KTOS.
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Kratos Defense & Security Solutions Inc (NAS:KTOS)
Beneish M-Score
-2.63 (As of Today)

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.

Kratos Defense & Security Solutions Inc has a M-score of -2.63 suggests that the company is not a manipulator.

KTOS' s Beneish M-Score Range Over the Past 10 Years
Min: -6   Max: 1.96
Current: -2.63

-6
1.96

During the past 13 years, the highest Beneish M-Score of Kratos Defense & Security Solutions Inc was 1.96. The lowest was -6.00. And the median was -2.53.


Definition

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 Kratos Defense & Security Solutions Inc 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 * 1.0801+0.528 * 1.0919+0.404 * 0.9905+0.892 * 0.9891+0.115 * 0.9495
-0.172 * SGAI+4.679 * TATA-0.327 * LVGI
-0.172 * 1.0165+4.679 * -0.0501-0.327 * 1.0464
=-2.63

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.

This Year (Sep16) TTM:Last Year (Sep15) TTM:
Accounts Receivable was $208.0 Mil.
Revenue was 165.4 + 168.2 + 153 + 177.5 = $664.1 Mil.
Gross Profit was 25.9 + 45.2 + 35.9 + 42.2 = $149.2 Mil.
Total Current Assets was $310.4 Mil.
Total Assets was $875.9 Mil.
Property, Plant and Equipment(Net PPE) was $47.3 Mil.
Depreciation, Depletion and Amortization(DDA) was $23.3 Mil.
Selling, General & Admin. Expense(SGA) was $147.7 Mil.
Total Current Liabilities was $187.4 Mil.
Long-Term Debt was $445.0 Mil.
Net Income was -23.6 + -10.4 + -22.2 + -4 = $-60.2 Mil.
Non Operating Income was 0.1 + 0.2 + 0.3 + -0.1 = $0.5 Mil.
Cash Flow from Operations was 3.8 + -0.9 + -11.5 + -8.2 = $-16.8 Mil.
Accounts Receivable was $194.7 Mil.
Revenue was 161.7 + 160.5 + 157.1 + 192.1 = $671.4 Mil.
Gross Profit was 40.4 + 40.9 + 38.3 + 45.1 = $164.7 Mil.
Total Current Assets was $310.4 Mil.
Total Assets was $921.5 Mil.
Property, Plant and Equipment(Net PPE) was $60.7 Mil.
Depreciation, Depletion and Amortization(DDA) was $27.7 Mil.
Selling, General & Admin. Expense(SGA) was $146.9 Mil.
Total Current Liabilities was $187.3 Mil.
Long-Term Debt was $448.5 Mil.



1. DSRI = Days Sales in Receivables Index

Measured as the ratio of days’ sales in receivables in year t to year t-1.

A large increase in DSR could be indicative of revenue inflation.

DSRI=(Receivables_t / Revenue_t) / (Receivables_t-1 / Revenue_t-1)
=(208 / 664.1) / (194.7 / 671.4)
=0.31320584 / 0.28999106
=1.0801

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.

GMI=GrossMargin_t-1 / GrossMargin_t
=(GrossProfit_t-1 / Revenue_t-1) / (GrossProfit_t / Revenue_t)
=(164.7 / 671.4) / (149.2 / 664.1)
=0.24530831 / 0.22466496
=1.0919

3. AQI = Asset Quality Index

AQI is the ratio of asset quality in year t to year t-1.

Asset quality is measured as the ratio of non-current assets other than plant, property and equipment to total assets.

AQI=(1 - (CurrentAssets_t + PPE_t) / TotalAssets_t) / (1 - (CurrentAssets_t-1 + PPE_t-1) / TotalAssets_t-1)
=(1 - (310.4 + 47.3) / 875.9) / (1 - (310.4 + 60.7) / 921.5)
=0.59162005 / 0.59728703
=0.9905

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.

SGI=Sales_t / Sales_t-1
=Revenue_t / Revenue_t-1
=664.1 / 671.4
=0.9891

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))
=(27.7 / (27.7 + 60.7)) / (23.3 / (23.3 + 47.3))
=0.31334842 / 0.33002833
=0.9495

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)
=(147.7 / 664.1) / (146.9 / 671.4)
=0.22240626 / 0.21879654
=1.0165

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)
=((445 + 187.4) / 875.9) / ((448.5 + 187.3) / 921.5)
=0.72200023 / 0.68996202
=1.0464

8. TATA = Total Accruals to Total Assets

Total accruals calculated as the change in working capital accounts other than cash less depreciation.

TATA=(IncomefromContinuingOperations_t - CashFlowsfromOperations_t) / TotalAssets_t
=(NetIncome_t - NonOperatingIncome_t - CashFlowsfromOperations_t) / TotalAssets_t
=(-60.2 - 0.5 - -16.8) / 875.9
=-0.0501

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.

Kratos Defense & Security Solutions Inc has a M-score of -2.63 suggests that the company will not be a manipulator.


Related Terms

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


Historical Data

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.

Kratos Defense & Security Solutions Inc Annual Data

Dec06Dec07Dec08Dec09Dec10Dec11Dec12Dec13Dec14Dec15
DSRI 0.58991.02680.84690.69761.31061.11580.81650.62411.6281.104
GMI 1.27311.15650.80271.06950.92140.77051.00921.09541.03040.9549
AQI 1.26621.16920.91970.94361.05260.98460.97390.99651.06770.9471
SGI 1.00531.26451.47831.16881.22121.74761.35760.87090.90390.8612
DEPI 0.57451.13350.72050.80892.1090.78410.98621.14211.0261.1043
SGAI 1.07881.09890.61830.83460.98361.40411.01161.02750.98341.1392
LVGI 1.33741.0971.07740.92661.37031.11091.0121.01751.060.8758
TATA -0.1783-0.1157-0.3326-0.2806-0.0276-0.022-0.1309-0.0482-0.03770.0593
M-score -3.61-2.64-3.88-3.88-2.14-2.07-2.96-3.11-2.13-2.25

Kratos Defense & Security Solutions Inc Quarterly Data

Jun14Sep14Dec14Mar15Jun15Sep15Dec15Mar16Jun16Sep16
DSRI 1.41831.28051.5771.02250.83430.82341.13960.99781.09441.0801
GMI 1.10771.07911.01351.03510.98980.95170.97050.95680.961.0919
AQI 0.99711.03221.06771.02881.06160.99680.94710.9880.95420.9905
SGI 0.73930.74060.93310.9410.92180.9270.83430.8770.94280.9891
DEPI 1.44011.50291.0261.24410.8750.84821.10430.84881.05070.9495
SGAI 1.05751.04080.98180.96931.03721.04261.14031.12971.02381.0165
LVGI 1.07271.05611.061.06561.02690.88820.87580.88070.87871.0464
TATA -0.0428-0.0346-0.0377-0.035-0.03510.03110.05940.06350.0551-0.0501
M-score -2.46-2.53-2.16-2.63-2.88-2.58-2.23-2.32-2.18-2.63
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