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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 -2.74.
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 * 0.9304||+||0.528 * 1||+||0.404 * 1.0185||+||0.892 * 1.0257||+||0.115 * 1.332|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 0.9547||+||4.679 * -0.0277||-||0.327 * 0.9407|
|This Year (Dec14) TTM:||Last Year (Dec13) TTM:|
|Accounts Receivable was $361 Mil.|
Revenue was 718.984 + 703.895 + 693.881 + 681.396 = $2,798 Mil.
Gross Profit was 718.984 + 703.895 + 693.881 + 681.396 = $2,798 Mil.
Total Current Assets was $1,813 Mil.
Total Assets was $7,043 Mil.
Property, Plant and Equipment(Net PPE) was $184 Mil.
Depreciation, Depletion and Amortization(DDA) was $56 Mil.
Selling, General & Admin. Expense(SGA) was $2,113 Mil.
Total Current Liabilities was $711 Mil.
Long-Term Debt was $1,056 Mil.
Net Income was 77.036 + 4.897 + 72.188 + 68.947 = $223 Mil.
Non Operating Income was 9.2 + -108.235 + 9.255 + 5.225 = $-85 Mil.
Cash Flow from Operations was 249.426 + 139.445 + -7.824 + 121.97 = $503 Mil.
|Accounts Receivable was $378 Mil.
Revenue was 720.092 + 669.852 + 670.417 + 667.763 = $2,728 Mil.
Gross Profit was 720.092 + 669.852 + 670.417 + 667.763 = $2,728 Mil.
Total Current Assets was $1,885 Mil.
Total Assets was $7,006 Mil.
Property, Plant and Equipment(Net PPE) was $192 Mil.
Depreciation, Depletion and Amortization(DDA) was $86 Mil.
Selling, General & Admin. Expense(SGA) was $2,158 Mil.
Total Current Liabilities was $729 Mil.
Long-Term Debt was $1,139 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)|
|=||(360.69 / 2798.156)||/||(377.97 / 2728.124)|
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)|
|=||(703.895 / 2728.124)||/||(718.984 / 2798.156)|
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 - (1813.374 + 183.655) / 7043.23)||/||(1 - (1885.263 + 192.045) / 7005.627)|
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))|
|=||(86.284 / (86.284 + 192.045))||/||(55.709 / (55.709 + 183.655))|
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)|
|=||(2112.784 / 2798.156)||/||(2157.596 / 2728.124)|
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)|
|=||((1056.215 + 711.121) / 7043.23)||/||((1139.171 + 729.478) / 7005.627)|
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|
|=||(223.068 - -84.555||-||503.017)||/||7043.23|
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 -2.58 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
Legg Mason Inc Annual Data
Legg Mason Inc Quarterly Data