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GuruFocus has detected 5 Warning Signs with McDonald's Corp $MCD.
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McDonald's Corp (NYSE:MCD)
Beneish M-Score
-2.64 (As of Today)

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.

McDonald's Corp has a M-score of -2.64 suggests that the company is not a manipulator.

MCD' s Beneish M-Score Range Over the Past 10 Years
Min: -2.95   Max: -2.2
Current: -2.64

-2.95
-2.2

During the past 13 years, the highest Beneish M-Score of McDonald's Corp was -2.20. The lowest was -2.95. And the median was -2.63.


Definition

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 * 1.1715+0.528 * 0.9294+0.404 * 1.1614+0.892 * 0.9689+0.115 * 0.9469
-0.172 * SGAI+4.679 * TATA-0.327 * LVGI
-0.172 * 1.011+4.679 * -0.0442-0.327 * 1.3256
=-2.64

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.

This Year (Dec16) TTM:Last Year (Dec15) TTM:
Accounts Receivable was $1,474 Mil.
Revenue was 6028.9 + 6424.1 + 6265 + 5903.9 = $24,622 Mil.
Gross Profit was 2558.2 + 2747 + 2586 + 2313.5 = $10,205 Mil.
Total Current Assets was $4,849 Mil.
Total Assets was $31,024 Mil.
Property, Plant and Equipment(Net PPE) was $21,258 Mil.
Depreciation, Depletion and Amortization(DDA) was $1,517 Mil.
Selling, General & Admin. Expense(SGA) was $2,385 Mil.
Total Current Liabilities was $3,468 Mil.
Long-Term Debt was $25,879 Mil.
Net Income was 1193.4 + 1275.4 + 1092.9 + 1098.6 = $4,660 Mil.
Non Operating Income was -12.9 + -11.4 + 13.2 + 10.6 = $-1 Mil.
Cash Flow from Operations was 814.9 + 2251.1 + 1248.4 + 1719.1 = $6,034 Mil.
Accounts Receivable was $1,299 Mil.
Revenue was 6341.3 + 6615.1 + 6497.7 + 5958.9 = $25,413 Mil.
Gross Profit was 2506.5 + 2591.3 + 2490.4 + 2201 = $9,789 Mil.
Total Current Assets was $9,643 Mil.
Total Assets was $37,939 Mil.
Property, Plant and Equipment(Net PPE) was $23,118 Mil.
Depreciation, Depletion and Amortization(DDA) was $1,556 Mil.
Selling, General & Admin. Expense(SGA) was $2,434 Mil.
Total Current Liabilities was $2,950 Mil.
Long-Term Debt was $24,122 Mil.



1. DSRI = Days Sales in Receivables Index

Measured as the ratio of days’ sales in receivables in year t to year t-1.

A large increase in DSR could be indicative of revenue inflation.

DSRI=(Receivables_t / Revenue_t) / (Receivables_t-1 / Revenue_t-1)
=(1474.1 / 24621.9) / (1298.7 / 25413)
=0.05986947 / 0.05110377
=1.1715

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.

GMI=GrossMargin_t-1 / GrossMargin_t
=(GrossProfit_t-1 / Revenue_t-1) / (GrossProfit_t / Revenue_t)
=(9789.2 / 25413) / (10204.7 / 24621.9)
=0.38520442 / 0.41445624
=0.9294

3. AQI = Asset Quality Index

AQI is the ratio of asset quality in year t to year t-1.

Asset quality is measured as the ratio of non-current assets other than plant, property and equipment to total assets.

AQI=(1 - (CurrentAssets_t + PPE_t) / TotalAssets_t) / (1 - (CurrentAssets_t-1 + PPE_t-1) / TotalAssets_t-1)
=(1 - (4848.6 + 21257.6) / 31023.9) / (1 - (9643 + 23117.6) / 37938.7)
=0.15851328 / 0.13648596
=1.1614

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.

SGI=Sales_t / Sales_t-1
=Revenue_t / Revenue_t-1
=24621.9 / 25413
=0.9689

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))
=(1555.7 / (1555.7 + 23117.6)) / (1516.5 / (1516.5 + 21257.6))
=0.06305196 / 0.0665888
=0.9469

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)
=(2384.5 / 24621.9) / (2434.3 / 25413)
=0.09684468 / 0.09578956
=1.011

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)
=((25878.5 + 3468.3) / 31023.9) / ((24122.1 + 2950.4) / 37938.7)
=0.94594168 / 0.71358534
=1.3256

8. TATA = Total Accruals to Total Assets

Total accruals calculated as the change in working capital accounts other than cash less depreciation.

TATA=(IncomefromContinuingOperations_t - CashFlowsfromOperations_t) / TotalAssets_t
=(NetIncome_t - NonOperatingIncome_t - CashFlowsfromOperations_t) / TotalAssets_t
=(4660.3 - -0.5 - 6033.5) / 31023.9
=-0.0442

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 -2.64 suggests that the company will not be a manipulator.


Related Terms

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


Historical Data

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.

McDonald's Corp Annual Data

Dec07Dec08Dec09Dec10Dec11Dec12Dec13Dec14Dec15Dec16
DSRI 1.19760.8561.17771.05051.00911.00940.94130.94241.15481.1715
GMI 0.95630.94460.95020.96561.01161.00851.01151.01810.98910.9294
AQI 1.09491.00361.05970.99341.00530.93790.97311.00680.85181.1614
SGI 1.09051.03230.96691.05851.12181.02081.01950.97640.92610.9689
DEPI 1.10470.97191.05260.97770.93721.02570.98090.9240.99540.9469
SGAI 0.94550.9640.98090.98670.91451.00480.9531.06811.05651.011
LVGI 1.02641.11271.00271.00611.05131.01530.98111.09381.38121.3256
TATA -0.0879-0.0647-0.043-0.0423-0.0492-0.0422-0.041-0.0576-0.0543-0.0445
M-score -2.60-2.95-2.54-2.60-2.59-2.67-2.70-2.86-2.86-2.64

McDonald's Corp Quarterly Data

Sep14Dec14Mar15Jun15Sep15Dec15Mar16Jun16Sep16Dec16
DSRI 0.95450.94240.93780.99041.011.15481.12071.11321.22181.1715
GMI 1.01521.01811.02091.02271.0080.98910.97270.95120.93440.9294
AQI 1.00231.00681.01150.95380.98080.85180.96251.04751.0091.1614
SGI 0.99990.97640.94680.91930.91710.92610.94970.96580.97230.9689
DEPI 0.9490.9240.90550.93530.97440.99541.04530.99881.01780.9469
SGAI 1.02981.06811.07411.07961.07641.05651.0441.04391.03291.011
LVGI 1.0661.09381.13891.22171.22441.38121.46331.46331.47641.3256
TATA -0.0565-0.0577-0.0681-0.0687-0.0695-0.0541-0.0528-0.0492-0.06-0.0442
M-score -2.81-2.86-2.96-2.98-2.96-2.86-2.84-2.80-2.77-2.64
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