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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 1.96. The lowest was -6.00. And the median was -2.54.
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|
|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
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)|
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)|
|=||(164.7 / 671.4)||/||(149.2 / 664.1)|
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 - (310.4 + 47.3) / 875.9)||/||(1 - (310.4 + 60.7) / 921.5)|
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))|
|=||(27.7 / (27.7 + 60.7))||/||(23.3 / (23.3 + 47.3))|
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)|
|=||(147.7 / 664.1)||/||(146.9 / 671.4)|
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)|
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|
|=||(-60.2 - 0.5||-||-16.8)||/||875.9|
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.
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