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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 Legg Mason Inc was -2.45. The lowest was -3.94. And the median was -2.69.
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 Legg Mason 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 * 1.0174||+||0.528 * 1||+||0.404 * 1.1346||+||0.892 * 1.0248||+||0.115 * 1.034|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 0.9951||+||4.679 * -0.0347||-||0.327 * 0.7833|
|This Year (Jun15) TTM:||Last Year (Jun14) TTM:|
|Accounts Receivable was $349 Mil.|
Revenue was 708.65 + 702.346 + 718.984 + 703.895 = $2,834 Mil.
Gross Profit was 708.65 + 702.346 + 718.984 + 703.895 = $2,834 Mil.
Total Current Assets was $1,675 Mil.
Total Assets was $6,829 Mil.
Property, Plant and Equipment(Net PPE) was $176 Mil.
Depreciation, Depletion and Amortization(DDA) was $55 Mil.
Selling, General & Admin. Expense(SGA) was $2,136 Mil.
Total Current Liabilities was $515 Mil.
Long-Term Debt was $1,057 Mil.
Net Income was 94.548 + 82.959 + 77.036 + 4.897 = $259 Mil.
Non Operating Income was 6.118 + 10.388 + 9.2 + -108.235 = $-83 Mil.
Cash Flow from Operations was 2.67 + 187.071 + 249.426 + 139.445 = $579 Mil.
|Accounts Receivable was $335 Mil.
Revenue was 693.881 + 681.396 + 720.092 + 669.852 = $2,765 Mil.
Gross Profit was 693.881 + 681.396 + 720.092 + 669.852 = $2,765 Mil.
Total Current Assets was $2,476 Mil.
Total Assets was $7,448 Mil.
Property, Plant and Equipment(Net PPE) was $187 Mil.
Depreciation, Depletion and Amortization(DDA) was $61 Mil.
Selling, General & Admin. Expense(SGA) was $2,094 Mil.
Total Current Liabilities was $1,135 Mil.
Long-Term Debt was $1,053 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)|
|=||(349.024 / 2833.875)||/||(334.747 / 2765.221)|
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)|
|=||(702.346 / 2765.221)||/||(708.65 / 2833.875)|
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 - (1675.48 + 175.897) / 6829.388)||/||(1 - (2475.895 + 187.388) / 7447.934)|
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))|
|=||(61.342 / (61.342 + 187.388))||/||(55.092 / (55.092 + 175.897))|
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)|
|=||(2135.587 / 2833.875)||/||(2094.177 / 2765.221)|
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)|
|=||((1057.122 + 514.548) / 6829.388)||/||((1053.349 + 1134.722) / 7447.934)|
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|
|=||(259.44 - -82.529||-||578.612)||/||6829.388|
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.
Legg Mason Inc has a M-score of -2.47 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
Legg Mason Inc Annual Data
Legg Mason Inc Quarterly Data