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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 Morningstar Inc was -2.20. The lowest was -3.04. And the median was -2.62.
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 Morningstar 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 * 0.996||+||0.528 * 1.0288||+||0.404 * 1.0008||+||0.892 * 1.0056||+||0.115 * 1.065|
|-||0.172 * SGAI||+||4.679 * TATA||-||0.327 * LVGI|
|-||0.172 * 0.9441||+||4.679 * -0.0674||-||0.327 * 1.1119|
|This Year (Sep16) TTM:||Last Year (Sep15) TTM:|
|Accounts Receivable was $124.3 Mil.|
Revenue was 196.1 + 198.2 + 192.1 + 201.6 = $788.0 Mil.
Gross Profit was 111.2 + 112.1 + 106.8 + 116.7 = $446.8 Mil.
Total Current Assets was $413.1 Mil.
Total Assets was $1,059.5 Mil.
Property, Plant and Equipment(Net PPE) was $150.0 Mil.
Depreciation, Depletion and Amortization(DDA) was $68.6 Mil.
Selling, General & Admin. Expense(SGA) was $197.2 Mil.
Total Current Liabilities was $314.2 Mil.
Long-Term Debt was $0.0 Mil.
Net Income was 30.2 + 31.8 + 28.7 + 37.3 = $128.0 Mil.
Non Operating Income was 2.1 + 2.9 + 0.3 + 0.6 = $5.9 Mil.
Cash Flow from Operations was 60.4 + 71.4 + 11.4 + 50.3 = $193.5 Mil.
|Accounts Receivable was $124.1 Mil.
Revenue was 195.3 + 202.1 + 189.8 + 196.4 = $783.6 Mil.
Gross Profit was 111.9 + 118.9 + 111.1 + 115.2 = $457.1 Mil.
Total Current Assets was $420.1 Mil.
Total Assets was $1,023.6 Mil.
Property, Plant and Equipment(Net PPE) was $124.3 Mil.
Depreciation, Depletion and Amortization(DDA) was $62.4 Mil.
Selling, General & Admin. Expense(SGA) was $207.7 Mil.
Total Current Liabilities was $273.0 Mil.
Long-Term Debt was $0.0 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)|
|=||(124.3 / 788)||/||(124.1 / 783.6)|
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)|
|=||(457.1 / 783.6)||/||(446.8 / 788)|
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 - (413.1 + 150) / 1059.5)||/||(1 - (420.1 + 124.3) / 1023.6)|
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))|
|=||(62.4 / (62.4 + 124.3))||/||(68.6 / (68.6 + 150))|
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)|
|=||(197.2 / 788)||/||(207.7 / 783.6)|
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)|
|=||((0 + 314.2) / 1059.5)||/||((0 + 273) / 1023.6)|
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|
|=||(128 - 5.9||-||193.5)||/||1059.5|
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.
Morningstar Inc 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
Morningstar Inc Annual Data
Morningstar Inc Quarterly Data