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GuruFocus has detected 3 Warning Signs with Kratos Defense & Security Solutions Inc $KTOS.
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Kratos Defense & Security Solutions Inc (NAS:KTOS)
Beneish M-Score
-2.58 (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 -2.58 suggests that the company is not a manipulator.

KTOS' s Beneish M-Score Range Over the Past 10 Years
Min: -4.52   Max: -1.46
Current: -2.58

-4.52
-1.46

During the past 13 years, the highest Beneish M-Score of Kratos Defense & Security Solutions Inc was -1.46. The lowest was -4.52. And the median was -2.84.


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 * 1.1317+0.528 * 1.0874+0.404 * 0.9504+0.892 * 0.9802+0.115 * 0.9938
-0.172 * SGAI+4.679 * TATA-0.327 * LVGI
-0.172 * 0.9574+4.679 * -0.0518-0.327 * 0.9692
=-2.58

* 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 $146.3 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 + 182.5 = $682.2 Mil.
Gross Profit was 42.2 + 40.4 + 40.9 + 46.9 = $170.4 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 $155.9 Mil.
Total Current Liabilities was $172.4 Mil.
Long-Term Debt was $444.1 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)
=(229.4 / 668.7) / (206.8 / 682.2)
=0.34305369 / 0.30313691
=1.1317

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)
=(170.4 / 682.2) / (153.6 / 668.7)
=0.24978012 / 0.22969942
=1.0874

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 - (373.1 + 49.8) / 948.6) / (1 - (320.4 + 56.2) / 903.3)
=0.55418511 / 0.58308425
=0.9504

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
=668.7 / 682.2
=0.9802

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))
=0.3121175 / 0.31404959
=0.9938

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)
=(146.3 / 668.7) / (155.9 / 682.2)
=0.21878271 / 0.22852536
=0.9574

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)
=0.66150116 / 0.68249751
=0.9692

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
=(-60.5 - 1 - -12.4) / 948.6
=-0.0518

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.


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

Dec07Dec08Dec09Dec10Dec11Dec12Dec13Dec14Dec15Dec16
DSRI 1.12680.84990.69511.31061.12540.80950.99670.54222.07581.09
GMI 0.99990.81560.9660.94030.82891.00161.05111.00431.02091.072
AQI 1.21920.91580.94751.05260.98420.97440.99651.03760.97460.9504
SGI 0.59061.53561.12511.22121.77011.34030.98080.91310.7571.0177
DEPI 0.87240.75250.7542.16650.78740.98221.04531.20271.02940.9938
SGAI 1.43790.62930.90770.9771.27781.0111.0190.98391.1480.954
LVGI 1.09651.07740.92661.37031.11061.01251.01741.0620.87420.9692
TATA -0.1157-0.3323-0.2666-0.0278-0.0222-0.1319-0.0481-0.04140.0593-0.0518
M-score -3.30-3.82-3.92-2.12-1.99-2.99-2.70-3.15-1.41-2.59

Kratos Defense & Security Solutions Inc Quarterly Data

Sep14Dec14Mar15Jun15Sep15Dec15Mar16Jun16Sep16Dec16
DSRI 1.05130.54191.01530.87720.92721.99941.14021.22111.16821.1317
GMI 0.99451.00441.01140.99150.99771.00641.02321.01681.13021.0874
AQI 1.03221.03761.02881.06160.99680.97460.9880.95420.99050.9504
SGI 0.9020.91360.94760.87670.82320.78590.76750.84490.91450.9802
DEPI 1.18691.20271.15560.98191.03141.02941.05861.12260.98870.9938
SGAI 1.02840.97630.96571.04031.04751.14391.13981.03631.02810.9574
LVGI 1.05611.0621.06561.02690.88820.87420.88070.87871.04640.9692
TATA -0.0314-0.0414-0.039-0.04180.0250.05990.06340.0551-0.0523-0.0518
M-score -2.66-3.15-2.68-2.90-2.56-1.46-2.23-2.12-2.60-2.58
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