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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 Kratos Defense & Security Solutions Inc was -1.45. The lowest was -4.19. And the median was -2.86.
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 * 0.9746||+||0.528 * 1.0044||+||0.404 * 1.0376||+||0.892 * 0.9136||+||0.115 * 1.2027|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 0.9829||+||4.679 * -0.0414||-||0.327 * 1.062|
|This Year (Dec14) TTM:||Last Year (Dec13) TTM:|
|Accounts Receivable was $131.6 Mil.|
Revenue was 221.5 + 217.1 + 229.3 + 200.1 = $868.0 Mil.
Gross Profit was 56.2 + 53 + 56.4 + 52.6 = $218.2 Mil.
Total Current Assets was $374.9 Mil.
Total Assets was $1,138.8 Mil.
Property, Plant and Equipment(Net PPE) was $82.6 Mil.
Depreciation, Depletion and Amortization(DDA) was $39.1 Mil.
Selling, General & Admin. Expense(SGA) was $173.4 Mil.
Total Current Liabilities was $226.1 Mil.
Long-Term Debt was $663.0 Mil.
Net Income was -2.2 + -10.9 + -49.9 + -15 = $-78.0 Mil.
Non Operating Income was 0.6 + -0.4 + -38.9 + 0.2 = $-38.5 Mil.
Cash Flow from Operations was 25.9 + -7.9 + -11.5 + 1.2 = $7.7 Mil.
|Accounts Receivable was $147.8 Mil.
Revenue was 235.7 + 226.4 + 235.2 + 252.8 = $950.1 Mil.
Gross Profit was 61.5 + 52.3 + 60.4 + 65.7 = $239.9 Mil.
Total Current Assets was $430.3 Mil.
Total Assets was $1,216.6 Mil.
Property, Plant and Equipment(Net PPE) was $84.8 Mil.
Depreciation, Depletion and Amortization(DDA) was $53.4 Mil.
Selling, General & Admin. Expense(SGA) was $193.1 Mil.
Total Current Liabilities was $251.0 Mil.
Long-Term Debt was $643.4 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)|
|=||(131.6 / 868)||/||(147.8 / 950.1)|
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)|
|=||(53 / 950.1)||/||(56.2 / 868)|
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 - (374.9 + 82.6) / 1138.8)||/||(1 - (430.3 + 84.8) / 1216.6)|
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))|
|=||(53.4 / (53.4 + 84.8))||/||(39.1 / (39.1 + 82.6))|
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)|
|=||(173.4 / 868)||/||(193.1 / 950.1)|
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)|
|=||((663 + 226.1) / 1138.8)||/||((643.4 + 251) / 1216.6)|
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|
|=||(-78 - -38.5||-||7.7)||/||1138.8|
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 -2.75 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
Kratos Defense & Security Solutions Inc Annual Data
Kratos Defense & Security Solutions Inc Quarterly Data