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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 1.94. The lowest was -5.95. And the median was -2.57.
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 * 0.8525||+||0.528 * 0.9823||+||0.404 * 1.0616||+||0.892 * 0.9021||+||0.115 * 0.8736|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 1.0369||+||4.679 * -0.0385||-||0.327 * 1.0269|
|This Year (Jun15) TTM:||Last Year (Jun14) TTM:|
|Accounts Receivable was $204.5 Mil.|
Revenue was 160.5 + 182.5 + 221.5 + 217.1 = $781.6 Mil.
Gross Profit was 40.9 + 46.9 + 56.2 + 53 = $197.0 Mil.
Total Current Assets was $353.2 Mil.
Total Assets was $1,102.6 Mil.
Property, Plant and Equipment(Net PPE) was $60.9 Mil.
Depreciation, Depletion and Amortization(DDA) was $36.9 Mil.
Selling, General & Admin. Expense(SGA) was $168.0 Mil.
Total Current Liabilities was $215.9 Mil.
Long-Term Debt was $663.0 Mil.
Net Income was -15 + -16.3 + -2.2 + -10.9 = $-44.4 Mil.
Non Operating Income was -1 + -0.4 + 0.6 + -0.4 = $-1.2 Mil.
Cash Flow from Operations was -12.2 + -2.9 + 25.9 + -11.6 = $-0.8 Mil.
|Accounts Receivable was $265.9 Mil.
Revenue was 204.2 + 200.1 + 235.7 + 226.4 = $866.4 Mil.
Gross Profit was 48.1 + 52.6 + 61.5 + 52.3 = $214.5 Mil.
Total Current Assets was $398.5 Mil.
Total Assets was $1,172.1 Mil.
Property, Plant and Equipment(Net PPE) was $84.2 Mil.
Depreciation, Depletion and Amortization(DDA) was $41.4 Mil.
Selling, General & Admin. Expense(SGA) was $179.6 Mil.
Total Current Liabilities was $246.9 Mil.
Long-Term Debt was $662.9 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)|
|=||(204.5 / 781.6)||/||(265.9 / 866.4)|
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)|
|=||(46.9 / 866.4)||/||(40.9 / 781.6)|
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 - (353.2 + 60.9) / 1102.6)||/||(1 - (398.5 + 84.2) / 1172.1)|
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))|
|=||(41.4 / (41.4 + 84.2))||/||(36.9 / (36.9 + 60.9))|
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)|
|=||(168 / 781.6)||/||(179.6 / 866.4)|
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)|
|=||((663 + 215.9) / 1102.6)||/||((662.9 + 246.9) / 1172.1)|
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|
|=||(-44.4 - -1.2||-||-0.8)||/||1102.6|
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 -2.90 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