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GuruFocus has detected 2 Warning Signs with Morningstar Inc $MORN.
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Morningstar Inc (NAS:MORN)
Beneish M-Score
-2.82 (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.

Morningstar Inc has a M-score of -2.82 suggests that the company is not a manipulator.

MORN' s Beneish M-Score Range Over the Past 10 Years
Min: -2.98   Max: -2.33
Current: -2.82

-2.98
-2.33

During the past 13 years, the highest Beneish M-Score of Morningstar Inc was -2.33. The lowest was -2.98. And the median was -2.62.


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 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 * 1.0338+0.528 * 1.022+0.404 * 1.1424+0.892 * 1.0124+0.115 * 1.0203
-0.172 * SGAI+4.679 * TATA-0.327 * LVGI
-0.172 * 0.9834+4.679 * -0.0714-0.327 * 1.3635
=-2.82

* 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 $145.8 Mil.
Revenue was 212.2 + 196.1 + 198.2 + 192.1 = $798.6 Mil.
Gross Profit was 124.2 + 111.2 + 112.1 + 106.8 = $454.3 Mil.
Total Current Assets was $472.0 Mil.
Total Assets was $1,350.9 Mil.
Property, Plant and Equipment(Net PPE) was $152.1 Mil.
Depreciation, Depletion and Amortization(DDA) was $70.7 Mil.
Selling, General & Admin. Expense(SGA) was $202.8 Mil.
Total Current Liabilities was $294.9 Mil.
Long-Term Debt was $250.0 Mil.
Net Income was 70.3 + 30.2 + 31.8 + 28.7 = $161.0 Mil.
Non Operating Income was 38.5 + 2.1 + 2.9 + 0.3 = $43.8 Mil.
Cash Flow from Operations was 70.5 + 60.4 + 71.4 + 11.4 = $213.7 Mil.
Accounts Receivable was $139.3 Mil.
Revenue was 201.6 + 195.3 + 202.1 + 189.8 = $788.8 Mil.
Gross Profit was 116.7 + 111.9 + 118.9 + 111.1 = $458.6 Mil.
Total Current Assets was $409.9 Mil.
Total Assets was $1,029.0 Mil.
Property, Plant and Equipment(Net PPE) was $134.5 Mil.
Depreciation, Depletion and Amortization(DDA) was $64.4 Mil.
Selling, General & Admin. Expense(SGA) was $203.7 Mil.
Total Current Liabilities was $304.4 Mil.
Long-Term Debt was $0.0 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)
=(145.8 / 798.6) / (139.3 / 788.8)
=0.1825695 / 0.17659736
=1.0338

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)
=(458.6 / 788.8) / (454.3 / 798.6)
=0.58138945 / 0.56887052
=1.022

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 - (472 + 152.1) / 1350.9) / (1 - (409.9 + 134.5) / 1029)
=0.5380117 / 0.47094266
=1.1424

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
=798.6 / 788.8
=1.0124

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))
=(64.4 / (64.4 + 134.5)) / (70.7 / (70.7 + 152.1))
=0.32378079 / 0.31732496
=1.0203

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)
=(202.8 / 798.6) / (203.7 / 788.8)
=0.2539444 / 0.25824037
=0.9834

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)
=((250 + 294.9) / 1350.9) / ((0 + 304.4) / 1029)
=0.40336072 / 0.29582119
=1.3635

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
=(161 - 43.8 - 213.7) / 1350.9
=-0.0714

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 -2.82 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.

Morningstar Inc Annual Data

Dec07Dec08Dec09Dec10Dec11Dec12Dec13Dec14Dec15Dec16
DSRI 0.96480.89310.96451.16170.89880.9680.94081.10040.98191.0338
GMI 0.98040.99651.01311.021.14321.00361.02251.05250.99881.0222
AQI 0.93141.01911.09591.05340.88191.10541.00151.06940.9481.1424
SGI 1.38051.15480.95331.15941.13691.04261.06081.08851.03781.0124
DEPI 0.92191.71820.88020.89341.00911.13921.11790.95290.9831.0203
SGAI 1.00740.97860.97641.04541.00320.97240.91140.96020.89220.9834
LVGI 0.89720.86550.77751.03050.99251.06971.05881.1121.01731.3635
TATA -0.0578-0.0727-0.0207-0.0381-0.0563-0.0343-0.0658-0.0639-0.1076-0.0714
M-score -2.46-2.64-2.54-2.37-2.68-2.59-2.77-2.59-2.98-2.82

Morningstar Inc Quarterly Data

Sep14Dec14Mar15Jun15Sep15Dec15Mar16Jun16Sep16Dec16
DSRI 1.01671.100410.98830.94320.98191.0120.94710.9961.0338
GMI 1.06921.05231.0280.99290.99980.99931.01331.03171.02881.022
AQI 1.12551.06941.00450.91190.91980.9481.01871.02041.00081.1424
SGI 1.08111.08851.08171.07841.05291.03781.02911.00741.00561.0124
DEPI 0.99230.95290.94240.93190.94710.9830.97611.02831.0651.0203
SGAI 0.9420.96020.95670.92630.89730.89220.8960.9270.94410.9834
LVGI 1.19951.1121.16170.94990.93541.01731.0971.07291.11191.3635
TATA -0.0571-0.0639-0.0814-0.0572-0.1227-0.1074-0.086-0.0808-0.0698-0.0714
M-score -2.63-2.59-2.82-2.71-3.06-2.98-2.85-2.88-2.81-2.82
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