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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 -1.61. The lowest was -3.83. And the median was -2.70.
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 * 1.32||+||0.528 * 5.1936||+||0.404 * 1.0842||+||0.892 * 0.9731||+||0.115 * 0.7848|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 1.0653||+||4.679 * -0.0655||-||0.327 * 1.4605|
* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.
|This Year (Sep16) TTM:||Last Year (Sep15) TTM:|
|Accounts Receivable was $426 Mil.|
Revenue was 748.37 + 700.165 + 619.551 + 659.557 = $2,728 Mil.
Gross Profit was 0 + 0 + 0 + 659.557 = $660 Mil.
Total Current Assets was $1,661 Mil.
Total Assets was $8,255 Mil.
Property, Plant and Equipment(Net PPE) was $166 Mil.
Depreciation, Depletion and Amortization(DDA) was $73 Mil.
Selling, General & Admin. Expense(SGA) was $2,183 Mil.
Total Current Liabilities was $681 Mil.
Long-Term Debt was $2,222 Mil.
Net Income was 66.441 + 33.452 + -45.273 + -138.626 = $-84 Mil.
Non Operating Income was 15.181 + 9.813 + -13.935 + 5.01 = $16 Mil.
Cash Flow from Operations was 303.829 + -165.97 + 148.059 + 154.684 = $441 Mil.
|Accounts Receivable was $332 Mil.
Revenue was 673.086 + 708.65 + 702.346 + 718.984 = $2,803 Mil.
Gross Profit was 0 + 0 + 2801.178 + 718.984 = $3,520 Mil.
Total Current Assets was $1,766 Mil.
Total Assets was $6,878 Mil.
Property, Plant and Equipment(Net PPE) was $173 Mil.
Depreciation, Depletion and Amortization(DDA) was $55 Mil.
Selling, General & Admin. Expense(SGA) was $2,106 Mil.
Total Current Liabilities was $596 Mil.
Long-Term Debt was $1,060 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)|
|=||(425.948 / 2727.643)||/||(331.602 / 2803.066)|
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)|
|=||(3520.162 / 2803.066)||/||(659.557 / 2727.643)|
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 - (1661.476 + 165.765) / 8254.55)||/||(1 - (1765.54 + 172.822) / 6877.954)|
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))|
|=||(54.635 / (54.635 + 172.822))||/||(73.105 / (73.105 + 165.765))|
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)|
|=||(2183.265 / 2727.643)||/||(2106.199 / 2803.066)|
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)|
|=||((2221.896 + 681.345) / 8254.55)||/||((1059.902 + 596.459) / 6877.954)|
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|
|=||(-84.006 - 16.069||-||440.602)||/||8254.55|
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 -0.45 signals that the company is likely to 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