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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 -1.68. The lowest was -4.56. And the median was -2.61.
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 * 1.0895||+||0.528 * 1.0725||+||0.404 * 0.9504||+||0.892 * 1.0181||+||0.115 * 0.9938|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 0.932||+||4.679 * -0.0518||-||0.327 * 0.9692|
* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.
|This Year (Dec16) TTM:||Last Year (Dec15) TTM:|
|Accounts Receivable was $229.4 Mil.|
Revenue was 182.1 + 165.4 + 168.2 + 153 = $668.7 Mil.
Gross Profit was 46.6 + 25.9 + 45.2 + 35.9 = $153.6 Mil.
Total Current Assets was $373.1 Mil.
Total Assets was $948.6 Mil.
Property, Plant and Equipment(Net PPE) was $49.8 Mil.
Depreciation, Depletion and Amortization(DDA) was $22.8 Mil.
Selling, General & Admin. Expense(SGA) was $143.0 Mil.
Total Current Liabilities was $196.5 Mil.
Long-Term Debt was $431.0 Mil.
Net Income was -4.3 + -23.6 + -10.4 + -22.2 = $-60.5 Mil.
Non Operating Income was 0.4 + 0.1 + 0.2 + 0.3 = $1.0 Mil.
Cash Flow from Operations was -3.8 + 3.8 + -0.9 + -11.5 = $-12.4 Mil.
|Accounts Receivable was $206.8 Mil.
Revenue was 177.5 + 161.7 + 160.5 + 157.1 = $656.8 Mil.
Gross Profit was 42.2 + 40.4 + 40.9 + 38.3 = $161.8 Mil.
Total Current Assets was $320.4 Mil.
Total Assets was $903.3 Mil.
Property, Plant and Equipment(Net PPE) was $56.2 Mil.
Depreciation, Depletion and Amortization(DDA) was $25.5 Mil.
Selling, General & Admin. Expense(SGA) was $150.7 Mil.
Total Current Liabilities was $172.4 Mil.
Long-Term Debt was $444.1 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)|
|=||(229.4 / 668.7)||/||(206.8 / 656.8)|
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)|
|=||(161.8 / 656.8)||/||(153.6 / 668.7)|
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 - (373.1 + 49.8) / 948.6)||/||(1 - (320.4 + 56.2) / 903.3)|
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))|
|=||(25.5 / (25.5 + 56.2))||/||(22.8 / (22.8 + 49.8))|
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)|
|=||(143 / 668.7)||/||(150.7 / 656.8)|
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)|
|=||((431 + 196.5) / 948.6)||/||((444.1 + 172.4) / 903.3)|
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|
|=||(-60.5 - 1||-||-12.4)||/||948.6|
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.
Kratos Defense & Security Solutions Inc has a M-score of -2.58 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