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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 McDonald's Corp was -2.18. The lowest was -2.98. And the median was -2.67.
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 McDonald's Corp 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 * 1.1132||+||0.528 * 0.9512||+||0.404 * 1.0475||+||0.892 * 0.9658||+||0.115 * 0.9988|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 1.0439||+||4.679 * -0.0493||-||0.327 * 1.4633|
|This Year (Jun16) TTM:||Last Year (Jun15) TTM:|
|Accounts Receivable was $1,267 Mil.|
Revenue was 6265 + 5903.9 + 6341.3 + 6615.1 = $25,125 Mil.
Gross Profit was 2586 + 2313.5 + 2506.5 + 2591.3 = $9,997 Mil.
Total Current Assets was $5,047 Mil.
Total Assets was $33,147 Mil.
Property, Plant and Equipment(Net PPE) was $22,850 Mil.
Depreciation, Depletion and Amortization(DDA) was $1,544 Mil.
Selling, General & Admin. Expense(SGA) was $2,433 Mil.
Total Current Liabilities was $2,667 Mil.
Long-Term Debt was $26,010 Mil.
Net Income was 1092.9 + 1098.6 + 1206.2 + 1309.2 = $4,707 Mil.
Non Operating Income was 13.2 + 10.6 + 18.5 + 5.8 = $48 Mil.
Cash Flow from Operations was 1248.4 + 1719.1 + 1378.7 + 1947.4 = $6,294 Mil.
|Accounts Receivable was $1,179 Mil.
Revenue was 6497.7 + 5958.9 + 6572.2 + 6987.1 = $26,016 Mil.
Gross Profit was 2490.4 + 2201 + 2474.1 + 2681.2 = $9,847 Mil.
Total Current Assets was $5,972 Mil.
Total Assets was $34,948 Mil.
Property, Plant and Equipment(Net PPE) was $23,691 Mil.
Depreciation, Depletion and Amortization(DDA) was $1,599 Mil.
Selling, General & Admin. Expense(SGA) was $2,414 Mil.
Total Current Liabilities was $2,761 Mil.
Long-Term Debt was $17,902 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)|
|=||(1267.1 / 25125.3)||/||(1178.6 / 26015.9)|
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)|
|=||(9846.7 / 26015.9)||/||(9997.3 / 25125.3)|
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 - (5046.6 + 22849.9) / 33146.5)||/||(1 - (5972.2 + 23691.2) / 34947.9)|
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))|
|=||(1599.2 / (1599.2 + 23691.2))||/||(1544.4 / (1544.4 + 22849.9))|
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)|
|=||(2433.2 / 25125.3)||/||(2413.5 / 26015.9)|
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)|
|=||((26010 + 2667.2) / 33146.5)||/||((17901.6 + 2760.8) / 34947.9)|
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|
|=||(4706.9 - 48.1||-||6293.6)||/||33146.5|
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.
McDonald's Corp has a M-score of -2.80 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
McDonald's Corp Annual Data
McDonald's Corp Quarterly Data